It is the dream of every human being to own a piece of the property on his name, which has now become our national day dream. But the things are changing pretty fast and huge population of India is now capable of owning an investment property and this popular culture is full with people investing, selling and renovating their dream properties.
But then again, in a rush to own a property, self-directed property investors every so often fail to acknowledge an asset class, which offers similar (or in some cases exponentially more) returns with minimal risks and minimal hassle; yes, we are talking about the commercial real estate. In this article, we will discuss a few points that will ensure you that it is extremely beneficial for you to buy commercial real estate in Noida.
What is covered under commercial real estate?
There is a wide range of assets covered under commercial real estate. To some, commercial property means office spaces, big boring buildings, cold storages and warehouses. However, the technical definition of a commercial real estate is any property (land or building) that can earn its owner an income is a commercial property. Hence, it also includes — hotels, hospitals, retail stores and even privately-owned storage units.
Self-directed investors or investors with low budget likes to invest in commercial properties because it diversifies their portfolios while providing a defensive tilt to the same.
The Return Profile
Investing in commercial real estate has a tendency to achieve quite a stable return, largely because a huge part of the return is achieved through income (might be direct benefits to your own business or secured under leases with tenants).
In a recent survey, where data of over 20 years were analyzed, showed that both residential and commercial properties have provided their owners with an almost similar percentage of returns. However, the biggest difference lies in the fact that close to 70% of the total return in case of commercial property came from income, which is the polar opposite of its counterpart (residential property) wherein 73% of the returns came from the property appreciation, which remained on papers and was not added to your pocket.
The difference that we just pointed out between commercial and residential involving income matters when the volatility is considered. Be it commercial or residential, value of property follows the economic cycle of rise and fall, however in case of commercial property it remains stable because of own use of property or due to long lease agreements between owners and tenants. For residential properties, this volatility factor is quite high.
In keeping with the views of real estate experts, capital gains for any period might be positive or negative, but investing in commercial property will ensure that the income returns remain consistently positive year after year.
Commercial properties remain immune to inflation, as it offers buyers with a natural barricade against price hikes. There are two principle drivers of this –
a) Long lease agreements — For commercial properties like healthcare facilities or office spaces — by and large the agreements include an annual increase of rent, which is linked to inflation. Hence, if there is an increase in property cost, the rent goes up the same way.
b) Short lease agreements — For commercial properties like — shops, hotels or self-storage units — the rent hike has nothing to do with inflation, however, since the tenant turnover is more regular, there is always a decent rent hike every year.
Busting the Common Myth
The biggest myth that revolves around investing in commercial real estate is its sensitivity to the loan interest rates. People are afraid of the rising interest rates and that creates negative feelings against the property investment.
To your surprise, it’s a myth and we have facts that disapprove this myth big time –
Properties perform better when the interest rates are increasing since it is a play on the principal economy — and increasing interest rates is a feature of an improving economy.
So, invest in a commercial property if you want to achieve a steady income. For such a lucrative deal, we suggest you to invest in Anthurium. Anthurium is a business park that offers its investors multiple ways to buy commercial property in Noida.
To learn more about the project and its investment options, visit sector 73, Noida or explore https://www.anthurium.in/building/