Tuesday, 23 December 2014

Office Space - Invest profitably in office

What are the pros and cons of investing in commercial property and how do you choose the right property.

The key advantage of investing in commercial property (office space) vis-a-vis residential property is that you can earn higher rental yields.
 While residential property can give you a return of 2-4%, commercial property can give a return as high as 6-9%.

Another advantage of investing in commercial property is that you can earn rental returns from it initially and use it for your own needs some time in the future.

For instance, you may be in a job at now but may want to start your own business or consultancy at a certain stage in the future-the office space will come in handy then.

The disadvantage of investing in commercial property is that capital appreciation in this asset class does not match that in residential property. Capital appreciation in residential property tends to be driven by both end-user and investor (or speculator) demand.

In the case of commercial property, however, the capital value tends to be more a multiple of the rental value. And rental value cannot keep rising very fast for too long; otherwise, it would make the cost of doing business prohibitive.

When you invest in commercial property, know that returns could be affected by the economic cycle.When the economy witnesses a downturn, fewer new businesses are created. This affects the demand for commercial space, and hence the pace of increase in rental rates.

How to select the Right Property:
As in the case of all real estate projects, location is the most important criterion even in the case of commercial property.

Try to pick an area where economic activity is likely to grow at a robust pace in the future. It should also be a locality where a massive amount of new supply will not enter the market in the next few years. If that happens, your returns could be adversely affected. The building that you invest in should have a good front and should be easily accessible from the main road. If visitors have to pass through narrow lanes to reach your building, tenants may not find it attractive. It should also be close to a main highway and should have a bus stop nearby. A Metro line would, of course, be the icing on the cake.

If you plan to buy in a project that is still under development, you should examine the builder's previous projects. This will give you an idea of the level of quality you can expect from him.

How well the builder maintains his projects after handing over possession is another issue that you must pay close attention to. If the building is kept by a maintenance agency, check whether the it is doing a competent job.

“How well a building is maintained after you are given possession plays a crucial role in its ability to attract tenants,“ says Sanjay Sharma, MD of Qubrex, a Gurgaon based real estate consultancy.

When you are in vesting in a commercial property under construction, make sure that all the approvals are in place and the developer has all the papers to prove that the land on which he is developing the property is owned by him.

Shared Property:

In commercial buildings, you also have the option of becoming a part owner of a large plate area. The area you own may not be demarcated and walled off on all four sides.

The advantage of investing in a shared property is that the ticket size is low. The disadvantage is that disputes may arise among the owners. For instance, some of the owners may be ready to lease the property at a certain rate, while others may opt to wait until another tenant who is ready to pay a higher rent is found. Making unilateral decisions is impossible in such a property.

Exiting such an investment can also be more complicated than in the case of a standalone property. The biggest disadvantage of a shared property is that since the areas are not properly demarcated, legal issues could arise over ownership rights.

Armed with this fundamental knowledge, you can now make profitable investments in commercial property.

Source: PropertyatNeoDevelopers.Wordpress.Com

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