Where to invest? Commercial or Residential!

Where to invest? Commercial or Residential!

July 20, 2018 in Investment News

If you are an investor, you stand to gain higher returns from a commercial property.

In any kind of real estate investment, there are two kinds of returns that you can expect – rentals and capital appreciation.

The returns vary depending upon whether it’s a residential or a commercial piece of property. “Statistically speaking, a commercial property gives estimates returns of about 5.5 per cent of the property value, whereas, for residential, it’s assumed to be at 1.8 per cent,” Ashish Arora, Director Distribution, at the World Trade Centre, Noida told Magicbricks’ Jayashree Kurup.

Giving the example of an investor who has about a crore of rupees to invest in real estate, if he was to invest it in a commercial property, he can easily expect to earn a return of about Rs 5.5 lakhs per annum from the rentals.

Investing the same amount in a residential property would, however, fetch him only Rs 1,80,000  per annum, which is much lower in comparison.

But this kind of a difference in returns pertains only with respect to rental income.

Returns from capital appreciation, in contrast, is contingent on a number of factors, such as location, the kind of property a person is investing in, the services which are being provided etc., the neighbourhood etc.

Residential complexes which are strategically located and are self-contained condominiums, with all modern-day infrastructure and amenities, will obviously appreciate faster and higher than, poorly-located, complexes with mediocre amenities.

The same logic works for investments in commercial space, as well. An F&B outlet in a mall that does not attract a good number of footfalls, or where the conversion ratio is poor, will not appreciate as far as one where the sales are swift.

That said, with a regulated market, both residential and commercial can fetch good returns, as both have a tendency of beating inflation. “Yet the returns on commercial tend to be substantially higher than from a residential property,” sums up Ashish Arora.

Source: Magicbricks Bureau

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