Commercial Property Investment - High Return Game

Buying a property for commercial purpose is a huge investment. That is the reason why investing in commercial traditionally has been the job of only high net worth individuals or institutional investors. However, time has brought change. Many types of investors are getting into the game.



Investment Routes

There are 3 main ways to invest in commercial property: buying the space directly from a developer, purchasing the commercial developer's share from the stock market or investing in a real estate fund that focuses on commercial real estate. Many developers, particularly in big cities, are offering small spaces in A-Grade buildings.

Investors looking towards getting retail space can now have multiple affordable options. The major advantage of smaller units are that it is easier to find tenants for the spaces and the premises can be used by the investor his or herself if they happen to be entrepreneur. Today, professionals such as doctors, lawyers, and auditors are investing in commercial properties for profit and for self use. The private bankers and WMFs (wealth management firms) encourage their clients to buy commercial properties as the properties can protect their clients from stock market volatility and inflation. Even banks are now lending 50 to 60 percent LTV (Loan to Value) to customers for these properties. The exact percentage depends on a customer's net worth and their ability to repay.

What to Look for

Despite wide array of price options, buying commercial property definitely is not child play. The process requires foresight, research and thorough planning. The followings factors should be taken into consideration before investing in a commercial property:

• Location: Before making an investment, buyers need to establish the location's soundness and its demand-supply dynamics. If buyers do not research enough, they may end up making the wrong investment.

• Economy: Buyers should also note the effects of population growth, the job market and the respective market's economy is sound.

• Developer: Investors should check the credentials of the developer, the potential infrastructure development, the quality of property management and the public transport accessibility to the project.

• Dynamics: While investing in retail business, one needs to consider the footfall, the frontage and the adjoining catchment's dynamics.

• Amenities: People who look to make an investment in commercial property need to ensures that a property's given amenities fulfil their business needs. If someone wishes to invest in an office, they need to consider breakup of cash flow through maintenance expenses, building insurance and property tax. They also need to check the lease term, the long-term appreciation potential and the refinancing and repositioning potential.

• Professional Advice: Before making any investment, investors should seek the help of a lawyer and a knowledgeable commercial property real estate agent.

Why Invest?

The rental income from commercial property generally is 9 to 12 percent while residential property only offers 3 to 4 percent. The sheer pride and numerous benefits of ownership are just two reasons why you should look at commercial investment.

Remember, you not only make profit on the sale of appreciated property but also from rental cash flows. Your capitalization rate actually measures the demand of the property.

Source: https://goo.gl/oyCeca

Commercial real estate offers investment opportunity worth $43b via REITs

Commercial real estate offers an investment opportunity worth $43 to $54 billion (Rs 2,88,758 crore to Rs 3,60,948 crore) across the top 8 cities via Real Estate Investment Trust (REIT)-eligible ready stocks.

The report estimates that Bengaluru has the highest value at Rs 1,05,213 crore ($15.8 billion) primarily due to the high volume of investible Grade developments. Mumbai is ranked second with a value of Rs 96,461 crore ($14.5 billion) due to higher capital values of commercial properties, despite having roughly half of Bengaluru’s REIT-able stock. The estimated value of REIT - eligible stock in NCR is Rs 73,423 crore ($11.04 billion) which is the third highest. Further, it is estimated that approximately 315 million square feet (msf) of office inventory is eligible for REIT across the cities.

The REIT-eligible inventory includes existing non-strata sold Grade A inventory, wherein Bengaluru, Mumbai and Delhi-NCR cumulatively account for over 67%.

“REITs can provide a huge opportunity for developers and investors in India given the potential in the Indian real estate market. REITs would help developers resolve their fund-raising issues and allow them to focus on completing their projects in a timely manner,” Sanjay Dutt, managing director, Cushman & Wakefield, a global research firm said.

“We have come out with the IPO guidelines for the issuance of units of Infrastructure Investment Trusts (INVits). On same lines, we are working on the IPO guidelines for units of REITs,” Barnali Mukherjee, chief general manager, Securities and Exchange Board of India (Sebi) said in her keynote address.

She said SEBI has set up sub-committees looking at the financials to be brought out with the offer documents as also the continuous disclosure to be made.

Apart from the office sector, the retail sector too has high potential to generate rental income for investors. Since last year, private-equity firms have shown interest in investing in malls in India, indicating that there is a certain attractiveness in the retail shopping center space owing to future prospects, the report said.

Sachin Sandhir, Global managing director - Emerging Business, RICS said “Commercial real estate is expected to see continued demand, fueled by positive business sentiment (especially in IT/ITES and new age digital businesses) based on major policy reforms undertaken by the government. There is also likely to be considerable international investor interest in income yielding assets and the first REIT’s and Invit’s are not far away.”

REITs will drive the need for Indian commercial real estate to speak the language of international investors which, in turn will create demand in international standards and corporate governance; professionalism and skills - which are all the things that the RICS Stands for, he said.

The top 8 cities have REIT - eligible mall supply of approximately 39 msf, with Bengaluru, Delhi-NCR and Mumbai together accounting for about 64% of the retail inventory. Owing to the presence of large mall developers in Delhi-NCR, Mumbai and Bengaluru that operate some of the best malls in India, investors are likely to concentrate their investments in these cities. Mumbai (11 msf) has the highest stock of REIT-able malls i.e. non-strata sold grade A malls followed by Delhi NCR (7.4 msf) and Bengaluru (6.5 msf).

Source: PropertyatNeoDevelopers.Wordpress.Com

Rental potential of office space stock for REITs to be $7.9 billion by 2019: C&W

The total rental income potential of all commercial grade A office stock in the top eight cities of India for Real Estate Investment Trusts (REITs) will be $7.9 billion (around Rs 51,800 crore) by 2019, according to a report by property consultancy Cushman & Wakefield.

Of the total estimated rental income between 2015-2019, the existing inventory of Grade A office space could provide REITs an opportunity to generate an estimated rental income of $5.4 billion (around Rs 35,500 crore).

Between 2016 and 2019, new Grade A supply of around 160 million sq ft is expected to add $2.5 billion (around Rs 16,300 crore) in rental income.

"REITs once implemented in India would offer a slew of benefits to various stakeholders such as developers, investors and the industry," Cushman & Wakefield said. "REITs can proportionately invest in commercial properties across smaller cities that will help in rapidly developing smaller cities while easing pressure on the top few cities in India. It will also provide occupiers with a wider choice of cities and tap into a larger pool of human resource. Moreover, the listing of REITs in India would encourage many mid-sized development firms to consider this avenue, as REITs would provide them with exits and an incentive to develop high-grade buildings," it said.

Sanjay Dutt, managing director, India, Cushman & Wakefield says that owing to high rentals, Mumbai has the potential to generate the highest rental income for REITs till 2019, while in 2016, Bengaluru's rental income potential is expected to surpass that of Delhi-NCR's led by increased Grade A supply.

"At a time when balance sheets of developers are stretched, REITs would help developers resolve their fund-raising issues and allow real estate developers with an option to exit projects. Overall, the REITs system is expected to provide a level-playing field for investors and increase transparency in the real estate sector which till date has largely remained opaque," he says.

Although REITs are likely to offer benefits to various stakeholders in the industry, there are some challenges that could delay its implementation in India.

"Taxation norms are extremely critical to the success of REITs in any country. Despite significant relaxations in the tax regime for REITs in India, certain tax issues have kept sponsors away from launching REITs. Under the current regulations, the inclusion of stamp duty and registration charges, Value Added Tax (VAT) Dividend Distribution Tax (DDT) etc. continues to be a hurdle in launching REITs in India," the property consultancy said.

Source: PropertyatNeoDevelopers.Wordpress.Com

Commercial property investment is much more profitable, safe and stable

Businessmen feel that contrary to the popular belief, real estate is not always a risky gamble provided the investor is well informed about market conditions, his requirements and his finances.

Considering all of this, a commercial property is the most stable asset and attraction in real estate market today.

It is felt that investing in commercial properties is more profitable than residential properties.

There are multiple reasons to believe so:

The ready to use commercial properties are wisely priced as compared to residential properties. It can only go up as construction and land cost is increasing for new projects, thus pushing prices upwards for ready to move properties.

Commercial investment fetches higher rental value as compared to residential investment.

Commercial Developers are offering very lucrative plans such as Assured Return on investment till possession, Lease Guarantee for the property post possession, Buy back options, Possession Linked Plans.

"Cities like Mumbai, Bangalore, Hyderabad, Delhi, Noida and Gurgaon are the hubs for commercial properties. With major corporate offices and multinational companies opening their branches in these locations, investment in commercial real estate will be highly beneficial both in short and long run," said Jetesh Prasher, CEO of GenX Deals.

GenX Deals is a renowned web portal focusing of information related to various commercial projects and one stop for all destinations for real estate related information.

We are all aware of the fact that real estate market is going through a consolidation phase, thus investment in commercial real estate will prove immensely beneficial for both who are looking to have regular monthly income from leasing their commercial properties or those who want to use the space for their own business and saving on monthly rent thereby.

"With the new government, more thrust has been made on reviving business sentiment. Proposals like increasing foreign direct investment limits, real estate investment trust and smart cities projects will bring increase flow of money and demand for commercial properties. We are getting very high volumes of business from developers engaged primarily in development of commercial projects," Akash Kohli, Marketing Director of GenX Deals, added.

The return on investment is calculated in two ways in a commercial property, one being the rent which is approximately 8-9 percent per annum of the cost of the property plus capital appreciation which is approximately 10 percent annually thus giving a stable return of 18-19 percent per annum.

For example a shop in a commercial complex costing about one crore shall give a rent of Rs 75,000 per month plus its cost shall increase to about 1,25-1.30 crore within a time fame of three years. Whereas yearly rental yield on residential properties hover close to mere three percent.

Explaining the Delhi NCR commercial real estate market, Jetesh Prasher also said that Delhi NCR has highest concentration of under-construction real estate projects in the country, roughly about 33 percent of the total value.

"Gurgaon has already proved to be a hot favourite for commercial property investors. New projects are also budding in Gurgaon, Noida, some pockets of South Delhi which will be prime locations for corporate offices. Thus, investors in commercial properties are likely to get greater profit margins in days to come," he added.

Source: PropertyatNeoDevelopers.Wordpress.Com

Hotels in Delhi allowed to build service apartments

Hotels in the Capital will now be allowed to build service apartments in the properties. The Ministry of Urban Development has approved a proposal for this as part of a review of the Master Plan of Delhi-2021, an official statement said.

Delhi Development Authority made the proposal after detailed deliberations further to inviting suggestions and objections in this regard. According to the change approved in the Development Controls for Commercial Centres pertaining to hotels, a maximum of 40 per cent of floor area ratio (FAR) can be used for commercial offices, retail and service shops and residential purposes. However, residential units would be permissible up to a maximum of 20 per cent of this FAR.

For example, for a plot of 10,000 sq. m, the area permissible for commercial and residential purposes would be 4,000 sq. m. Of this, the area allowed for residential purposes would be 800 sq.m. (20 per cent of 4,000 sq. m.). Transfer of ownership of such residential units built in hotels would be permissible only if the hotel land is freehold, the statement added. If the land is leasehold, transfer of ownership would be allowed only after DDA frames rules for the purpose.

Earlier, FAR of 20 per cent was allowed for commercial purposes, which now stands increased to 40 per cent with the inclusion of residential use.

Source: PropertyatNeoDevelopers.Wordpress.Com

Realty sector pushes for sops in Union Budget

With the Union budget round the corner, every section of society, especially businesses, are looking for signs of relief from finance minister Arun Jaitley. In the real estate hubs of Noida and Gurgaon, the realty sector is hoping this budget would bring sops to revive the moribund sector.

Along with the Confederation of Real Estate Developers Association of India (CREDAI), individual developers have already written to the ministries about the sops they are hoping for in the budget.

P Sahel, the vice-chairman of Lotus Greens India Inc., is eagerly awaiting the 2015 Union Budget. "We expect attractive tax norms for Real Estate Investment Trusts (REIT), etc. We'd be most happy if interest rates for home loans are reduced, which will boost the sector and help bridge the gap between demand and supply. If the government initiates steps towards providing special benefits to green and sustainable development, it will have a profound impact, as it is the future of the real estate industry," Sahel added.

S S Bhasin, the MD of Bhasin Group, said, "The entire corporate world is looking up to Narendra Modi, ever since he became India's Prime Minister. With his government about to present the budget, the real estate sector wants him to take decisions that will rejuvenate it. We're reeling under a slump. The government should consider the points of view of both developers and buyers. There is need to control interest rate and create single-window systems."

"The last budget had brought some relief to our sector. To meet Modi Ji's ambitious project of housing for all by 2022, we hope for special packages for low-cost housing, such as exemption from tax under 80IB for flats under 1,000 sq ft, which was removed in 2008. We need such steps to speed up development," said Amit Gupta, Assocham member and MD of Orris Infrastructure.

At the other end of the spectrum, homemakers, too, are a worried lot. "Prices of vegetables and pulses are soaring. In the last six months, the rates of pulses have seen a 20-25% hike. Vegetables prices have risen by 25-50% in the last month alone," said Vibha Kumar, a resident of Noida.

"There is no relief for the common men, especially senior citizens, for whom there are no special facilities as in Western countries. People like me fail to meet monthly expenses from pension alone. Arun Jaitley should initiate steps for immediate relief of aam aadmi," said S C Sachdeva, a resident of Noida's Sector 39.

Source: PropertyatNeoDevelopers.Wordpress.Com

Shopping malls supply dips 79% in 2014 on construction delays

The supply of retail space in shopping malls last year fell sharply by 79 per cent to about a million sq ft in the seven major cities of the country due to construction delays, property consultant CBRE said on January 20. The supply of organised retail space stood at 4.7 million sq ft in 2013 in the seven cities - Delhi-NCR, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad and Pune.

"New supply addition for the entire year remained sluggish, with just about a million square feet of organised shopping space across Bangalore and Chennai becoming operational," CBRE South Asia CMD Anshuman Magazine said. A significant number of prominent retail projects were not completed till 2015 as projected earlier, mainly due to construction delays, he added.

CBRE noted that a number of shopping centers in Delhi NCR, Hyderabad, Bangalore and other prominent cities were expected to be completed by 2014-end but they were delayed further. A slowdown in the real estate sector has affected the cash-flow of developers, leading to huge delays in completion of housing and commercial projects.

According to CBRE, prominent global as well as domestic players - such as Starbucks, Dunkin Donuts, Michael Kors, Brooks Brothers, Krispy Kreme, Naturals Ice cream, and Fab India - expanded their presence across India's leading cities.

Global retailers Burger King and Fat Burger made inroads into the country as well, with stores in Delhi. Sri Lanka's premier spa lifestyle brand, Spa Ceylon, also made its India debut with a first outlet in Mumbai, the report said. Luxury jewellery brand Bvlgari re-entered India with a store at DLF Emporio, Delhi. The consultant said that increased activity was observed in the online retail space during the year.

"Retailers such as Burton, Paper Dolls, Scotch & Soda, and Xiaomi entered into exclusive tie-ups with leading Indian online retailers for selling their merchandise rather than setting up physical stores. "Also, brands that are already established in the brick and mortar format such as Mango, Aldo, Superdry have also been keen on establishing their presence online," CBRE said.

Domestic brands are also towing the line with brands such as Shoppers Stop, Trendin (website for brands of Arvind mills such as Louie Philips, Van Heusen, Peter England, Allen Solly) setting up dedicated online shopping websites.

Shoe brands such as Bata and Clarks have also set up portals for shopping on their respective websites. On the outlook for this year, CBRE said the first half is likely to witness a shift in development completions from the established hubs of Delhi and Mumbai, towards cities such as Bangalore, Hyderabad and Kolkata.

"As availability of quality retail space in established markets of Delhi and Mumbai is expected to remain tight, rents in prime malls and high streets are expected to increase marginally," the consultant added. CBRE expects leasing demand to strengthen on the back of an anticipated improvement in economic performance and likely execution of corporates' expansion plan as the new year sets in.

Source: PropertyatNeoDevelopers.Wordpress.Com

Rate cut in the near future

The time for a rate cut may be coming up fast even earlier than expected. The macro and micro-economic factors have been favorable and are pointing in the right direction. The favorable factors should make it easier for the Reserve Bank of India (RBI) to commence the long-awaited descent journey of interest rates.

The latest economic data has been a pointer to this effect. The industrial growth rebounded to a five-month high in November. At the same time, the consumer inflation didn't accelerate to the extent anticipated in December despite an adverse base effect. The economic indicators point towards the fact that the economy has now started looking up and inflation is under control. These will support the demand for a rate reduction.

According to the latest data released, the industrial growth rose by 3.80 percent in November, reversing the sharp 4.20 percent contraction in the previous month. Further, the consumer inflation rate moved to five percent in December from 4.38 percent in the previous month. This is in line with the consensus expectations of a 5.20 percent rise in the inflation rate. The Consumer Price Index (CPI) based inflation rate for December appears to be within the RBI's target range. As such, there is now an expectation that the RBI may lower the policy interest rates in the coming weeks.

The manufacturing sector, with a 75 percent weight in the Index of Industrial Production (IIP), rose by three percent in November against a 7.40 percent contraction in the previous month, adding to signs of strength. Electricity generation rose 10 percent while mining output was up 3.40 percent in November. Capital goods, an indicator of investments, posted growth for the fifth time this fiscal in November, up by 6.50 percent.

The CPI declined month-onmonth, showing that the softening bias in prices has continued. The core CPI for December fell further to 5.23 percent from 5.51 percent in the previous month. The core CPI has been consistently declining since January 2014, when it stood at 8.10 percent. The consumer food price index sped up sharply to 4.78 percent in December from 3.14 percent in the previous month. The marginal rise in retail inflation should not prevent the RBI from cutting the benchmark interest rates. The food inflation rate surged as prices of some food items, including fruits and vegetables, increased. Food inflation rose to 4.78 percent in December, from 3.14 percent in the previous month.

Acceleration in the CPI based inflation rate and improved factory output performance could put pressure on the RBI to cut the policy interest rates before the upcoming Union Budget in February .

All this should spell good times for home loan borrowers. They can expect a reduction in the interest rates in the near future and consequently their EMIs. For prospective borrowers, who are planning to purchase property, opting for a floating rate loan as against a fixed rate loan will make sense. As the interest rate on a home loan offered by a bank is linked to the base rate of the bank, a reduction in the policy rates by the RBI will lead to a lowering in the base rate of the bank. This in turn will lead to a reduction in the interest rate on the home loan for a borrower of a floating rate loan.

Source: PropertyatNeoDevelopers.Wordpress.Com

Rich Dividends - Boon for Investors

GCE Road is well-suited for investors as the risks are low here.

Golf Course Extension Road is among the few new areas of Gurgaon that will see end user demand in the near future.

Rajan Ahuja, director of Realty and Verticals, says: "The current real estate market is such that only long-term investment will work now. Gone are the days when you could invest in a project, sell after paying just 20-30% money to the developer, and earn a handsome profit. I expect this area to give a steady return of 20% over the next 4-5 years."

Ahuja says that an investment here will also be safe because you can rent out your property easily due to the high end-user demand expected here. “In many of the new sectors of Gurgaon, a number of properties are ready but they have not been rented for the past one year or so. The same is the case with commercial properties. GCE Road is one area where your property will be rented as soon as it is completed. This makes it a safe investment. Investors must, however, have an investment horizon of at least 4-5 years to earn reasonable gains here,“ Ahuja says.

Price Appreciation:

(1.) Mishra says that apartments here were selling for Rs 2,600 per square foot five years ago, whereas prices have now touched Rs 7,000-11,000 per square foot.

(2.) Over the past one year, the market has been largely stagnant with only properties nearing completion registering appreciation of 10-15%.

(3.) Market watchers say that projects on GCE Road located close to Golf Course Road will see prices appreciate and nearly match prices on Golf Course Road itself, where the current rates are Rs 13,00015,000 per square foot.

Rental Rates:

Not too many projects have been completed here at present. Currently, 2BHK apartments are available for Rs 15,000-20,000 per month while three-bedroom apartments are available for Rs 22,000-25,000. The rental rate depends on the area of the apartment and its quality.

Street lighting and security need to improve in this area. Connectivity of some sectors like 57 and 61 also needs to improve.

Source: PropertyatNeoDevelopers.Wordpress.Com

Neo Square – A Commercial Project at Dwarka Expressway, Gurgaon

Neo Square – A Neo Developers’ Premier Commercial Project @ Sector 109, Dwarka Expressway, Gurgaon.

1st loss free proposal in Delhi NCR starting @ Rs. 24.60 Lacs, Limited Period Offer.

At Neo Square, prepare to be spoiled for choice – with the finest luxury brands. Offering the retail,hyper market, entertainment, cinema & service apartments and relaxing open terraces. The retail space is designed unlike a typical mall but as an multi use marketplace.

For further details kindly visit: http://www.neosquare.in/ or call us at +91 124 2881000 or email us at info@neodevelopers.com.

Neo Square – A Neo Developers’ Premier Commercial Project @ Sec 109, Dwarka Expressway, Gurgaon

At Neo Square – a commercial project in Gurgaon, prepare to be spoiled for choice – with the finest luxury brands offering the retail, hyper market, entertainment, cinema & service apartments and relaxing open terraces. The retail space is designed unlike a typical mall but as an multi use marketplace.

Welcome to a space that gives business and leisure a whole new location! As the premier development by Neo Developers, Neo Square enjoys the perfect location, perfect amenities and the perfect lifestyle avenues for the modern Indian.

Advantages:
1.) rated as a Gold-graded building by the Ministry of Environment and Forest
2.) coming up on Dwarka Expressway, an 8-lane & 150 mt wide road
3.) front facing development, with unhindered view of the Expressway
4.) instant connectivity within NCR, UIA, UER-1 & UER -2

For further details kindly visit www.neosquare.in or call us at +91 124 2881000 or email us at info@neodevelopers.com.

Neo Square – A Commercial Project at Dwarka Expressway

Neo Square – A Neo Developers’ Premier Project, a commercial project @ Sector 109, Dwarka Expressway, Gurgaon.

1st loss free proposal in Delhi NCR starting @ Rs. 24.60 Lacs, Limited Period Offer.

At Neo Square, prepare to be spoiled for choice – with the finest luxury brands. Offering the retail,hyper market, entertainment, cinema & service apartments and relaxing open terraces. The retail space is designed unlike a typical mall but as an multi use marketplace.

For further details kindly visit: http://www.neosquare.in/ or call us at +91 124 2881000 or email us at info@neodevelopers.com