Commercial property yields high returns
Indian developers are using the latest technological advancements to ensure that their projects are green and secure, with ambience and facilities that match international standards. Nowadays, developers are providing world-class features in the new commercial office space that is coming across the country, like automatic valet parking, water harvesting, zero disposal with sewage treatment plants, access control, intelligent building management systems, under-body car scanners, and intelligent elevator technologies.
Good tenants: The occupiers of these buildings are a veritable who’s who. Typically, banks are considered to be the best tenants but large conglomerates are coveted clients too. Why? First, they pay the rent on time as they are cash-rich and second, these companies bring with them superior standards of corporate governance and compliance, thus, ensuring process driven smooth payment flows.
Good location: The locations of these buildings are in prime business districts of major metros. Many locations attract investment from the government. With the government working to provide superior infrastructure in these locations, a virtuous growth cycle has been initiated. This is because the government itself can occupy large buildings with multiple departments and ministries. Additionally, a large number of government-owned companies and public sector undertakings may be directed by the government to occupy in these locations.
Stable, predictable income: Another good aspect of a commercial property lease is the long tenure, typically three years, and in multiples of three years, with monthly or quarterly payments and deposits ranging from 6-12 months. The tenant invests alongside the investor in the property and, at times, spends good money in the upkeep of the building amenities and landscaping to meet global standards. The tenant invests in the property by doing the fit-outs, which could cost anywhere between Rs 1,500-4,000 per sq ft based on corporate guidelines. This makes the tenant ‘sticky’, as he has a financial disincentive to terminate the agreement, apart from the lease contract termination clauses.
High yield: According to a recent study, India has the highest yield (rent, capital value) second only to Manila, which are almost 50% higher yield than Europe or the US. This can be better appreciated as the quality of the tenants and quality of buildings (energy-efficient, glass, and aluminium) is the same. Contrast this
to residential yields which are around a quarter of that of commercial yields in India. The case for commercial property becomes stronger as you can earn up to four times more with the same initial investment. Another benefit of locking in high yield is that as interest rates fall, investors can earn a ‘spread’ between the yield and the interest rate charged to the investors, should they take a loan to finance the acquisition.
Tax-efficient structures: There are multiple tax-efficient structures available to hold commercial property investments, ranging from trusts to private limited companies.
These structures can impact taxation levels, quantum, incidence, and estate planning; investors should take help from experts to arrive at the optimum structure for their objectives.
Source: Times Property, The Times of India, Delhi/NCR
Posted on November 7, 2013, in Real Estate and tagged Affordable Houses in Delhi NCR, Greater Noida (WEST), Residential Properties in Ghaziabad, Residential Properties in Greater Noida, Sanjay Rastogi, Sanjay Rastogi Builder, Sanjay Rastogi Builders, Saviour Builder. Bookmark the permalink. Leave a comment.