Why Are Commercial Properties More Preferable Than Residential For Investment In Pune?

By Author: Anusha Rana
Total Articles: 75
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Introduction

Pune has grown steadily into an IT business hub in recent years. Properties in Pune are attracting the attention of many investors worldwide. The city is now a profitable alternative to the expensive market of Mumbai. Commercial property in Pune is appreciated to grow at a rate of about 15 percent.
The IT, start-up culture, manufacturing, and automobile industries have increased the need for the number of properties for sale in Pune. More industries also mean an increased workforce. Hence the requirement for residential properties in Pune is also increasing with the need for office spaces to rent/buy.

Reasons to Invest in Commercial Properties in Pune

● Higher Returns on Investment (ROI)

Residential tenants change frequently, but commercial tenants sign much longer contracts. These contracts are sometimes valid for decades or more. This ensures a steady income from the commercial property. Also, the rents are much higher than those of residential properties. Hence, the overall ROI is higher and more regular.

● High Annual Rental Appreciation

Recent research ...
... statistics state that the annual rental appreciation for commercial properties has been 8-11 percent. This is much more than the residential, which grew between 1.5 to 3.5 percent. Using tools like Real Estate investment trust (REIT), working-class Indians can now invest in commercial properties and enjoy a percentage of the annual appreciation.

Commercial Vs Residential: Which One is Better to Invest

Commercial real estate is a broad term that includes space for businesses such as retail, offices, and industries. In layman's terms, any property used only for business purposes is commercial real estate (CRE). On the other hand, residential real estate (RRE) includes housing properties for sale/rent.

The ROI of commercial real estate is three times more than residential real estate. The annual rental appreciation for commercial properties is also more than for residential.

An advantage of investing in RRE is that you need much less capital. Banks also tend to loan only a small amount of the total cost to invest in CRE. Whereas in the case of RRE, they are ready to loan out the total cost. This is because of the lesser size of property and value. The demand for rental properties is also higher. This is because everyone needs a place to stay. Because of the large pool of buyers and renters, the leasing process also becomes more accessible.

However, the price growth in Pune residential properties has slowed since 2014. This leads to stagnancy in the value of a residential property. The value then decreases over time. On the other hand, commercial properties have a lifetime asset value appreciation. This is because new industries keep coming up.
In the case of commercial properties, the rents are steadier. The lease contract is also more rigid and long-term. That means tenants are almost always available. Commercial properties also tend to return more gross revenue as the owners don't have to pay for regular maintenance.

Investing in either will depend on two main factors: the risk involved and the end goal. However, investing in commercial properties without having large capital is now possible.

Anusha Rana is a real estate consultant at HonestBroker. Her work mainly focuses on giving the right advice to the buyer and Seller's and how she can improve the growth of real estate in current situation.