Anuj Puri, Chairman – ANAROCK Property Consultants
In times of continuing low residential sales, developers are seeking alternatives to infuse liquidity and boost business. Strata sale (sale to retail or individual investors) of commercial assets (office and retail) is emerging as a lucrative option.
Individual investors also seek alternate high-yielding investment options in Indian real estate to compensate for the almost negligible returns that housing has yielded over the last 5-6 years.
Strata sale of commercial real estate presents a huge opportunity to local as well as national developers. To maintain their cash flows, many are now listing anywhere between 25-40% of their office supply for strata sale.
Early in 2019, realty major Prestige Estates announced its plan to strata sell 25% of its office assets to individual investors looking for plays in high-yield realty assets.
In what is now a rare win-win situation for real estate investors and developers, the former can earn high returns and the latter can generate liquidity for business expansion.
For developers, strata sales also eliminate the need to manage commercial properties. Thus, the strata-sale route allows them to consolidate their rental business.
Sliding ROI in residential property investment is attracting more and more HNI and NRI investors previously focused on luxury real estate to strata-sold commercial spaces.
As per ANAROCK data, the 5-year average residential returns have been as low as 5% across major cities. In the 2000-2009 period, returns were double or even triple.
In sharp contrast to the prevailing 3% average rental yield (annual rent divided by property cost) of housing, Grade A commercial assets generate yields of 8-10% and Grade B properties 6-8%. Regular retail properties can generate similar or even higher yields, depending on location.
The average ticket-size for commercial space investment is as low as INR 10 lakh in tier 2 cities and as high as INR 10 crore or more in tier 1 cities. Lower-ticket investors can focus on office spaces as small as 1,000 sq. ft. and still, turn a decent profit.
However, despite commercial property investment's undoubted lucrative upside, they call for an entirely different investor profile. When compared to housing, the ticket sizes are a lot higher - as is the risk of loss in ill-chosen plays.
Even the most experienced commercial space investors depend on reliable property consultancies to identify and secure the right office and retail spaces.
While the documents for loan eligibility consideration are the same for both residential and commercial properties, there are distinct variations between the two: