Commercial Spaces: Your Best Bet For Most Returns In Real Estate

Land has always held its place as a high-value asset. But to consider land as an investment, there is a lot of hidden complications that bring down the returns of this investment.

"Residential properties will not make the same returns that other investments can give. If the bull run in the market may continue because of the sales momentum, the increase in the price will be an issue," said Anuj Puri, co-founder of ANAROCK Property Consultants Pvt.

The rental yield from commercial spaces are better income and return on investment, as a part of the cost of maintenance is taken up by the users of the space.

"How you enter the game matters as a real estate developer and a real estate investor make different returns from this asset class," said Santosh Joseph, founder of Germinate Investor Services LLP.

Inflation post Covid has changed the space and returns from residential property may not be as stable as one thinks, according to Santosh.

Spaces used for offices, industries, warehousing and other similar purposes will do better, said Puri. As more demand for commercial spaces come up, the rental yield of these spaces along with capital appreciation does have compelling returns.

Commercial spaces are better investments as the initial costs will balance the maintenance cost that the tenant takes up.

For retail investors, Real Estate Investments Trusts, or REITs can be a good place to invest, as cities like Bengaluru will soon see the highest demand for commercial spaces, said Puri.

Total cost of ownership is often a lot more than a loan that one might take to buy the land. The overall cost is extended by expenses like stamp duty, brokerage, legal costs and many others.

Doing up the property will also bring up price, said Joseph. Talking about situations where the property comes without ready-to-live conditions, the owner will now need to invest their own money to improve the space.

There is also yearly costs like holding tax and maintenance that investors may not account for, that could actually bring down the returns from the asset.  

To meet the massive demand a lot of buildings and societies have taken up redevelopment projects. These projects often get delayed before they deliver the promised supply.

"During society redevelopment, supply will take a lot longer than two-three years, as there are a lot of hurdles that will delay the process," said Puri. Despite the delay, he recommends holding on to the property that is going through redevelopment.

The is because the developer will be able to give a bigger, better and improved space, after the process. This will bring an upside in price that can benefit the owner.

For those feeling stuck with an older house that is costing them much maintenance, it is better to aggressively sell and invest in better spaces.

"Most people are looking for houses with top-notch facilities. One can unlock value by buying something that is prevalent today," said Joseph.