Clearing the air on commercial real estate

Sanyam Dudeja, Chief Executive, Jubilee Group 

Commercial real estate has withstood the onslaught of slowdown in the past few years, but for an average buyer it is still a no-go zone because of lack of proper information about investments in this segment. This week we take some such myths and present the real picture for the benefit of small investors. 

Myth: Commercial real estate is a good option for big investors only.

Reality: Real Estate is an integral part of the portfolios of people who have looked at the realty sector from an investment point of view, regardless of small or big investments. Commercial real estate investment is a good option for investors looking for a steady rental income irrespective of the size of investment. This asset class, appropriately owned, can help support investors, well into their retirement years.The average return on a commercial real estate investment post possession varies from 6 to 9 per cent vis a vis 2 to 4 per cent in residential property. What matters most is the location, planning and long-term sustainability of the project in which one is investing. Prospect of leasing the property post possession is the key for investment in this segment for small investors.

Myth: Tax burden is not same in commercial and residential investments 

Reality: For all purposes all taxes are the same and even lease money is taxed at the same rate for commercial as well as residential investments. In case of commercial real estate investment, lease, including income from business, is more than Rs 20 lakh per annum. GST is also applicable which is also borne by the person who is paying the lease money. 

Myth: The rental value/return on commercial properties is not very good

Reality: On the contrary, rental value in commercial investments is more as compared to investment in residential property. Average rental in commercial is between 6 to 9 per cent as compared to 2 to 4 per cent in the residential segment. Another advantage in case of commercial investment is that most rented spaces in commercial are basic structures and the interiors are done by the company that leases the premises. Quite the opposite in residential where basic facilities have to be provided by the owner.

Myth: Investing in commercial real estate is a good idea only for people who have a business

Reality: Investing in a commercial property is a good idea for anyone and everyone looking to create an assured and consistent rental income over the years. In fact, the returns act as a back-up/secondary source of income. Considering the attrition rate in the job market, it provides an income guarantee for the investor that can go well into the retirement age.

Myth 5: Bank finance not available on commercial properties 

Reality: Bank finance is available to aid commercial investment. However, while for investing in a residential property one can avail finance up to 80 per cent, it is  up to 65 per cent in case of commercial properties.