If you are an NRI wanting to buy property in India, now is the best time to invest to do real estate investments. India’s real estate market has never looked as promising in the previous few decades as it does today. Specifically, commercial real estate. Experts anticipate that in 2022, India’s commercial real estate will experience a spike in consumer sentiment, presenting the sector with an overall optimistic outlook and the ideal environment for NRI investments.
Commercial real estate is experiencing a substantial rise because of the emerging new trend of returning to the office with confidence. The development of publicly listed real estate investment trusts, fractional ownership, and real estate crowdfunding has made investing in commercial real estate (CRE) assets more cost-effective and time-consuming. Assetmonk is a credible real estate platform in India. It also offers high-end A-grade commercial property investment options. It provides investors with fractional ownership and real estate crowdfunding opportunities. They claim excellent liquidity, transparency, and IRRs ranging from 12 to 21 percent.
When should you invest in real estate? Now. Commercial real estate is one of the best assets for passive income since it may create a regular cash flow via rentals. However, investors should carefully consider their financial situation, investment objectives, risk tolerance, and profit-generating timeline. Following are some reasons commercial real estate should get viewed as an investment asset class for NRIs and why now is a good time to invest to do commercial real estate investing.
Overview of India Commercial Real Estate Market
During the projection period, India’s commercial real estate gets estimated to increase at a 13% CAGR between 2022-2027.
Work from home culture emerged due to COVID-19. It nonetheless had a short-term influence on new office space requirements. In 2020, the new office buliding in India’s seven cities stood at 36.34 Mill. sq. ft., a 30% decrease compared to the past year. The strong comeback of the office renting market, on the other hand, was expected to start in 2021.
The need for high-grade commercial spaces will surpass 700 Mill. sq. ft. by 2022, with Delhi NCR contributing the most demand. For overall office space leasing, Mumbai witnessed a 36% rising demand by consulting companies in the first half of 2020.
The manufacturing industry generated 24 percent of office building renting in 2020, with 5.7 mill. sq. feet. The manufacturers of electronic components and SMEs took lease the most in Delhi NCR, Chennai, and Pune. It also gets followed by the auto sector renting in Ahmedabad, Chennai, and Pune. 3PL, retail industries, and e-commerce contributed 34 percent, 26 percent, and 9 percent of total office space rents.
Retail and hotels are also rapidly expanding in the commercial real estate industry, providing the infrastructures for the massive needs of India. The large-scale institutional investments in the commercial real estate market are likely to boost growth shortly.
Government efforts like Make in India have considerably benefited the country’s commercial real estate industry. Developers and purchasers have flocked to the commercial real estate industry because of its openness and competency. It has also drawn rising FDI or foreign direct investments.
The demands for commercial properties get driven by the country’s economic expansion. Government efforts and development policies like AMRUT and Smart City will boost the consumption of real estate infrastructures.
Key Commercial Real Estate Trends
The following reasons are why now is the best time for NRI investment in real estate.
- Rising Growth of the Country’s Office Markets: The fast advancement of the vaccination drive, which gets aided by a fall in the COVID cases, is boosting investor confidence in a quick economic recovery. Developers are confident about a robust return in office leasing activity because of the steady reopening of operations and companies’ shift to offices for more need of co-working spaces. Most Indian cities saw a rise in fresh office space supply between January and June 2021. Bengaluru’s fresh office building supply increased almost twofold in the earlier months of 2021. It increased by 9.53 Mill. sq. ft. from January 2021 to June 2021 from 3.35 Mill. sq. ft. in 2020. Delhi NCR increased by 35% YOY, from 3.88 Mill. sq. ft. till 5.23Mill. sq. ft. Hyderabad’s fresh office space supply climbed by 3% YOY, reaching 3.84 Mill. sq. ft, up from 3.73 Mill. sq. ft. Mumbai’s office supply has quadrupled from 2.29 Mill. sq. ft to 4.73 Mill. sq. ft. January 2020 to June 2020 saw Pune’s space increase twofold, from 0.6 Mill. sq. ft to 1.28 Mill. sq. ft.
- The retail industry gets expected to have rapid expansion: The second Covid-19 wave hit the market in the second quarter of 2021, yet despite being significantly more severe than the first Covid-19 wave, the volumes of transactions in the second quarter of 2021 increased by 39 percent year on year compared to Quarter 2 of 2020. There are five of the eight markets saw an increase in the volumes of transactions in Quarter 2 of 2021 compared to Quarter 2 of 2020. Increased vaccine availability aided the needle to stop moving throughout the quarter. Yet, the half-yearly figures for the volumes of transactions declined 29 percent YoY to about 1.14 million square meters (12.3Mill. sq. ft) in the first half of 2021. The scenario of construction had better control in the second wave of the pandemic than during the first. But, the 1.39 million square meters (15.1 Mill. sq. ft) of office space completed from January to June 2021 was 18% lower than in January to June 2020, since developers aimed at renting old projects. The rate of vacancies has risen about 16.6 percent in the first half of 2021, up from 14.2 percent earlier. During the first half of 2021, the average rent transaction fell in 7 of the 8 markets, with rentals in Mumbai, Bengaluru, and Pune decreasing by 14 percent, 11 percent, and 9 percent, respectively.
- Competitive Environment: India’s commercial real estate industry is robust and fiercely competitive. India commercial property has become a preferred location for institutional investors due to considerable office space take-up, declining vacancy levels, and rising rental prices. As the number of developers selling office space buildings decreases, India’s commercial property market is entering a modest consolidation phase. Small developers also combine with large-scale firms or abandon the market. Godrej Properties, DLF, Oberoi Realty, and Housing Development and Infrastructure Ltd are the country’s critical commercial real estate businesses.
Why Should You Put Your Money In India Commercial Real Estate?
- Rental Yields: Rental income is critical for people considering investing when doing real estate. Real estate investors are usually bewildered about whether to invest in commercial or residential properties. In contrast, commercial real estate vastly outpaces residential properties. India’s commercial property is significantly less expensive compared to a residential property in a neighborhood, delivering varied additional benefits via return and capital appreciation. For example, commercial space rental yields are roughly 7% to 9%, or almost 4 to 5 times higher than residential properties rent, which is barely 1% to 2%. Investors consider pre-leased investments in commercial buildings. These have already been leased and provide investors with the potential to receive rental income from day one.
- Long-term and stable investment: Offices, stores, and warehouses are safe investments since they may produce regular rental money. Commercial tenants often have more lease agreements, giving investors a more consistent and predictable income stream. Office spaces are often smart investments for at least 4-5 years. When the firm does not yet have the corporate offices or head office, the lease term might get extended to ten years plus the option of renewal only upon the tenant’s request. Pre-rented commercial premises previously leased to renters lessen the chance of vacancy.
- Passive Income: It’s important to note that high passive income via commercial buildings, combined with capital appreciation. It can lead to a return totaling up to 15 percent annually, ensuring steady cash flows for investments. Commercial properties are in great demand and offer high rental yields. The rental incomes are consistent. You also have total control over picking the perfect property based on your ROI or Return on Investment expectations. Thus, it makes real estate THE EXCELLENT SOURCE OF PASSIVE INCOME.
- Market Trend Analysis: By 2030, India’s real estate industry gets expected to be worth $1 trn., from $200 bln. in 2021. It gets expected to generate 13 percent of the country’s GDP. Commercial real estate, retail, and hotel are escalating, providing the needed infrastructures to India. India’s commercial property investment is expected to rise because of the establishment of REITs.
- Leverage: The Lease rental discounting or LRD enables property owners to purchase pre-leased commercial buildings using debt. LRDs are term loans issued by banks that utilize rental income as collateral. They typically have annual interest rates ranging from 7 percent to 9 percent. LRDs also let real estate investors borrow almost 65 percent to 70 percent of the property’s worth. The benefit is the loan’s EMI is generally lesser than the monthly rental income you will receive. Consequently, a Rs. 1 investment will generate Rs. 4 assets if the debt gets paid off with zero outflows from the wallet throughout the loan’s period.
- Competent Tenants: A business property’s lock-in duration can range from 3 to 9 years, giving consistent returns and safeguarding your investments from volatility. Renters of your commercial buildings have typically established businesses, making it easy to oversee them. The landlord and renter have a courteous and professional relationship.
Covid-19 is winding down. Most companies have reopened and resumed operations. Furthermore, most individuals are attempting to return to offices. Flexible workspaces are also becoming a reliable alternative for individuals and businesses. It allows individual flexibility. It will define India’s future workplaces in the coming years.
Commercial properties get regarded as a significant chunk of the investment portfolios of individuals to create higher passive income. Commercial property investing is a tremendous wealth-building instrument with the correct use of leverage.