Important Things To Remember Before Investing In Any Commercial Project In Gurgaon

By Author: Ambika Sharma
Total Articles: 2
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Gurgaon has come out as an ocean of opportunities in recent years due to its possibility from the commercial point of view. The rapid growth of this city has changed the scenario of Commercial investment in Gurgaon and changed the entire vision of Commercial projects in Gurgaon.

Commercial Investment is definitely an attractive investment product, where you will be getting a regular income and also get capital appreciation over a time period as well. Commercial investments fetch better regular returns than residential investments. Residential investments usually fetch 2% - 2.5% returns annually whereas commercial investments fetch 5% - 8%. But before investing in a commercial property you should know some key points which will help you in making the right decision about your investment.

Here are the important factors to remember before investing in any Commercial Project in Gurgaon:

•Location
When it comes to property investment and especially commercial investment location is the prime feature to be considered. Commercial properties in Gurgaon offer you rent and capital gratitude. ...
... Both these returns are based greatly depends on the location of the property. If you want to invest in under construction properties, you should know about what future developments have planned around that location. Those future developments are going to offer the commercial space with the footfall of customers. It will ultimately help you fetching better returns post completion of the property. When it comes to ready to move-in properties, as an investor you should check the possession of that location. The possession should be more than 95%, which means that the supply of spaces is less for tenants. It will help in getting higher rental income and capital appreciation.

•Qualitative Construction
You must be aware about that thing that two buildings in the same location have different level of tenancy. One building is mostly occupied and other one is struggling to get tenants. Usually the reason for this situation is quality of construction & structural appearance on offer. The property offering better quality will always attract better quality of tenants and helps in fetching higher rental income and capital appreciation. When it comes to MNCs they always ready to draw a premium amount in return of better quality. While investing in commercial spaces you should be looking for certified properties like, LEED, Gold or Platinum ratings. Moreover, the structural appearance also plays an important role for getting tenants. Buildings with good front wall, good looking entrance & lobbies, number of elevators, ceiling height and great views provides more liquidity and can be sell off quickly.

•Demand vs Supply
This factor is one of the most important features to consider before buying a commercial property because every city has different micro-markets and each micro-market has a stock and supply. Annual demand of property used to publish regularly by brokers and if the annual supply exceeds historical demand, the rents and prices would come down and high supply will affect both new and old buildings. New buildings will control minor rents because tenants will get more options in the market.

•Market Rent VS Property Rent
It is an important factor to consider the assess the future risk of leasing associated with the property. First, let’s understand Market & property rentals. Market rentals are the rental returns prevailing in the market at the location of the property. Property rentals are the rental returns offering from your target investment property. It will be easier for us to understand this thing with the help of an example.

For assumption there are 3 different properties with almost similar price but with different rental incomes:

Property A Price – 1000 Rental Income – 100 Return Percentage – 10%
Property B Price – 1050 Rental Income – 110 Return Percentage – 10.5% (Approx.)
Property C Price – 950 Rental Income – 90Return Percentage – 9.5% (Approx.)

As an investor, definitely you will be going to invest in property B as it generating highest rental returns. However, this is not the only thing to be considered, as an investor you should be aware about the market rentals as well. If the prevailing market rental returns are 9.5%, then there are higher chances of tenants of property A & B moving to other cheaper options. In other way, we can say that if you are going for property B, it means it is an overpriced property with overstated rentals.

•Tenants Quality
The quality of tenants also plays a significant role in selecting a commercial property for investment. A good tenant will definitely increase the overall worth of the property. If a property is leased to an MNC or international brand definitely the quality of construction and facilities offered in the property are of world class. Moreover, a Multinational tenant also attracts other tenants to the same property. Big tenants or big brands pays timely rentals, higher security deposits, stays longer in property and also upsurge the worth of the property.

•Lease Structure
When it comes to leasing structure of commercial properties, it is completely different from residential. Usually commercial lease agreements are structured in 3+3+3 leading to 9 years or 5+5+5 leading to 15 years. In the first scenario, the escalation in rent will be processed every 3 years and in second, it will be every 5 years. However, these agreements are one-sided which means the tenant can vacate the property at any time and the landlord cannot force them to stay till the lease period. Nevertheless, there can be a lock-in period in which the tenant cannot vacate the property. Usually the lock-in period is for 3 years for midsize companies and 10 to 15 years for MNCs. While investing in commercial property the investors should understand the structure of the lease agreement. So, the longer the duration of lock-in period, the better the chances of higher rentals and capital appreciation.

•Security deposit
Security deposits structure in commercial properties is between 10 and 12 months’ rent. If you are getting a commercial property with 6 months or less security then it means tenant is interested in short-term investment or some cash flow issues are there. Sometimes beginners who are completely new for this commercial sector used to ask for lesser deposits.

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