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.