NRIs Investing in Commercial Property in India Can Find Tips Here

It is a daunting task for the Non Resident Indians (NRIs) looking forward to invest in Indian property. The present scene is such that with the rupee touching all time lows against the dollar, it seems to be an ideal time to send funds to India for investment. But, the returns do not seem that positive as India's growth story looks dull. For all the Non Resident Indians with big budgets and who are serious about investing in real estate can consider this option.

What is recommended for the NRIs is that they consider investing in commercial spaces. According to COO - Operations of Jones Lang La Salle, he states that today, NRI's are considering buying commercial properties for investment. On the other hand, HNIs too in the anticipation of higher yield continue to plough huge amounts of money into high-ticket commercial properties. After shying away in 2009 and 2010, wealth management firms and private bankers nod that their clients have vigorously started investing in commercial properties. What has made these investors invest in commercial properties is that they seek assets that can protect their portfolios from inflation and stock market volatility. The other factors as to why investors must consider investing in commercial real estate is that there is a likelihood of the sheer pride of ownership, diversifying your portfolio and the benefits of the longer leases that typify commercial tenants.

Following are some of the tips before an investor must consider while investing in commercial property:

Location
He opined that investors must establish the soundness of the location and its supply/demand dynamics. Therefore, apt research must be done by the investors before buying as upon not doing so they may end up buying into micro markets which have or will have high vacancies. NRIs must also make sure that the job market, economy and population growth in the market is healthy.

He also added that today Mumbai and Bangalore offer the best investment opportunities for commercial.

Type of Property
In this there are two types of commercial properties available which are office and retail spaces. According to a renowned executive, until a few years ago, only large units were available in both, which made it difficult for a small investor to invest. But today, there is a change which has come through and smaller spaces are becoming available too.

According to COO - Operations of Jones Lang La Salle, in Grade A buildings, there are numerous developers, especially in cities such as Mumbai, who are offering smaller units of space (as small as 500-1,500 square feet). He further states that investors looking forward to invest in retail space can today consider a massive amount of affordable options in free-standing high street outlets or shops in malls.

According to him, he advises that those looking forward to invest in retail space must look at high street rather than a mall as strata sold mall is a recipe for disaster. What happens in a strata sale model is that shops in a mall are pre-sold to individual investors. Hence, the developer restricts himself to selling a store as a unit and investor can hunt for a tenant. Why the problem arises is because the model has no control over trade and tenant mix and there is no cohesiveness to the mall to attract customers.

Out lay and expected returns
According to the experts a minimum budget you should have in mind for a commercial investment is Rs 3-4 crore.

According to the renowned executive, the rental yield from commercial properties is estimated at 12%. Basically, rental yield is nothing but the annual rent divided by the property value. He also states that very often, buyers tend to ignore rental yield and give more importance to capital appreciation. But, rental yield is a very important consideration as it represents productivity of the price. Therefore, it is advisable to get a rental yield of at least 11-12% while buying a commercial property. A yield of less than that only means the property is overvalued.

According to him, you can expect returns of 10-11% per annum from commercial investment. However, one must remember that you do not only make a profit on the sale of appreciated commercial property - the rental cash flows of a well-located office or shop space are considerable too. When compared to residential property, the income that can be generated from commercial property is something that determines its value. To put it in other words, the capitalization rate is in fact the measure of the demand for the property. It is a high-adrenaline and high-returns game for those who do research well in investing in commercial property.

Due diligence
One must exercise a fair share of due diligence while investing in commercial real estate.
To make sure everything goes smooth, one must check potential for infrastructure development, the developer credentials, quality of property management in the project and access to public transport. If you are investing in a retail store, you must consider the foot-fall, frontage and the dynamics of the adjoining catchment.

According to COO - Operations of Jones Lang La Salle, if you are an investor looking at an income producing office asset, then it is advisable to look at the vacancy factor, break-up of cash flows, expenses such as property tax, maintenance and building insurance, lock-in period, lease term and expiry dates, refurbishment, long-term capital appreciation potential, refinancing and repositioning potential.

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Check about Parking Space While Buying a House

While buying a house, one would prepare their own checklist that has to be taken care and more often they miss out few points that have to be given utmost care and finally they suffer and realize after moving in to the house. Hence, the buyer should confirm with the seller or developer about all the specifications and make a clarification about the common areas, maintenance charges, and the portion of the houses that the buyer has right to sell. Among many points that a buyer should consider while buying a house is the parking space as it may create some confusions to the buyers in future.

Here are some points that has to be taken care while checking about the parking space:

Selling parking slots:
While buying house make sure that as a buyer you are acquainted that parking space cannot be sold as it is a part of society’s common area and not part of Floor Space Index (FSI). The parking space can be sold only if the developers have used the FSI for parking space and have sufficient proof to justify that FSI was allotted to develop car parking space.

The 2010 Supreme Court judgment delivered by Justices R M Lodha and A K Patnaik states that the buyers need not to pay any additional money to buy parking spaces from the property developers and also declares that the developer has no right to sell any portion that is not a flat.

The Apartment Acts of most states also states that selling of parking spaces is in contradiction of the classification of common area and facilities. According to the Apartment Act of Haryana, the common area as the land on which the building is located includes building's entrances and exits, basement, lobbies, cellars, halls, stairs, stairways, yards, gardens, fire escapes, storage spaces, and parking spaces within the location.

In any case, if a developer charges buyers for car parking additionally, the buyer can redress in a consumer court of the city or state level. For example, recently the Central Mumbai District Consumer Disputes Redressal Forum ordered Tata Housing Development Company to refund Rs.50,000 and to compensate with Rs.20,000 additional to one their customer Suresh Mehta who paid for parking slot in their Betegaon, Palghar Project.

Buying parking spaces:
Selling of car parking slots is illegal and if you have purchase parking space, then it becomes worthless and invalid. The owner of all parking spaces within a project is a housing society, which is registered takes in charge of the project.

Money-back option if parking space bought:
Since, developers are not allowed to sell car parking slots, they don’t charge the buyers additionally, instead they cost is included into the apartment’s price. However, if the buyer has any proof of buying car space from the developer, then he can approach any consumer court in the city.

Distribution of parking slots:
Generally, parking space is allotted on first come first serve basis, in case if a housing society has a constricted number of parking slots, then the distribution is decided by the society's managing committee by consulting with the members. Allotment is done through a yearly draw, if the number of cars exceeds the slots vacant and some member may not get slots. Many societies reallot parking slots so that the buyers would not claim ownership of parking spaces. Extra parking space can be given to a buyer, if all the member in the society are allotted with parking space.

Is parking space compulsory in a society?
Aakansha Joshi, Senior Associate of Economics Laws Practice says that in accordance with the guidelines of Development Control Regulations (DCR 1991) in Regulation 36 for Greater Bombay, which says that whenever a property is developed or redeveloped, parking slots have to be provided with a commencement certificate and the development permission by submitting a building plan that includes the details of the parking spaces.

Sachin Sandhir, MD of RICS in South Asia says that the ideal building rules of the National Building Code (NBC) of India, the Town and Country Planning Organization, Ministry of Urban Development, Government of India states that parking slots for units in a housing development is compulsory.

So, make sure that as a buyer, you don’t pay any additional cost for parking space or pay any amount to buy parking slot, if you do so, then make sure that you have evidence for paying additional price or buying parking slot.

With Loan Cost Shooting Up, Salaried Realty Investors Left in Mess

According to industry experts, what is making the salaried professionals who had invested in properties earlier to put them for sale is the fact that the country’s rising cost of living, low wage revisions, widening economic slowdown, and higher interest rates.

Owing to falling rental yields and rising interest rates, people are today finding it difficult to service their home loans. This is the section of people who had invested in properties 10-15 years earlier.

A survey reveals that the resale inventory has shooted up to almost 30 per cent over the past six months.

According to the head of a property portal, he believes that the economic slowdown has affected the real estate industry. What has affected the salaried class is that owing to high cost of living, they are finding it difficult manage things. Hence, those people who had invested in properties five-six years ago to make the most of the time, have now resorted to sell them.

He also stated that presently the resale market is hugely conquered by young professionals. Moreover, what has made the sector a profitable field is that there is high cash inflow.

According to another executive of a renowned realty company, in the present economic conditions, it has indeed become a challenging task to find tenants with higher rents as today people have become more aware owing to uncertain economic conditions. Hence, they are considering properties with lower or similar rents.

Moreover, the primary buyers are ready to make a deal in the resale sector when compared to new homes owing to the risks involved in new projects.

The executive added that such resale inventory was primarily more in large metro cities. This has enticed the buyers too as they can get a chance to own a property immediately as compared to new properties. They feel the risks are less when they buy a resale property.

He also added that such deals would draw primary buyers. However, people looking forward to investing in properties at the moment, might not consider this option.