Commercial property in India has gained international prominence due to the liberalization of the regulatory framework. Indian real estate space has been attracting global investors due to rapid growth and returns as high as 9-11% in Grade A properties. Further, with capital appreciation of nearly 6%, commercial property in India offers a high rate of return, with relatively low risks. However, investing in properties in India can be a complicated process. With coming into effect of the Real Estate Regulation and Development Act 2016 (RERA), residential assets have noticed a slowdown, which again has resulted in increased attention in the commercial real estate space. High growth sectors such as e-commerce, pharmaceuticals and warehousing are constantly driving demand for commercial property.
Investors should understand the different aspects of commercial property in India to better allocate their resources. One of the most important parts of commercial property in India is to understand the asset classes. For the asset class office space, you must look at the location of the space in terms of access to public transport, accommodation facilities nearby, education and medical facilities, and the presence of retail stores. For asset class retail shops, duration of leases, quality of tenants and presence of rent control laws are important factors to consider. For shopping malls, it is important to look at the overall development of the surrounding area, the presence of other malls, and the potential for the development of the area. For warehouses, you must consider the proximity to ports, access to the city, and e-commerce players within the location. For other asset classes such as hotels, hospitals and manufacturing units, it is important to consider the presence of competition within the area, and the development potential around the area.
Another important factor to consider while investing in commercial real estate in India is the presence of stable cash flows, emanating from steady rental deposits. For commercial properties, if you are expecting steady cash flows, then you also need to provide regular repair, renovation and refurbishing to the assets. You need a solid management team to manage your tenants, vacate the properties at the end of the lease term, and renovate the properties according to needs of the incoming tenants.
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