Commercial real estate investment in India is a burgeoning sector that has gained significant traction in recent years due to its potential to offer stability of investment and competitive returns over the long term. If you’re looking for ways to grow your wealth and secure a stable income stream, commercial real estate investment might just be the perfect option for you.
Commercial real estate (CRE) in India offers attractive returns. Unlike residential properties that yield around 2% in rental income, commercial properties can yield 8-9% or higher, along with appreciation, resulting in overall returns of 15-16%. It is possible to invest in commercial real estate through a number of different channels, including crowdsourcing and fractional ownership. However, a particularly alluring path is structured debt. Earning its distinguished position among India’s best investment opportunities, this avenue calls out. Through alternative investment platforms such as Assetmonk, investors can participate with a minimum investment horizon of 36 months with a remarkable internal rate of return (IRR) at 17%.
What is Commercial property investment?
Commercial properties are those that are utilised for non-residential or business purposes, or to generate income (by leasing or selling). Commercial investment is any investment made in such assets with the goal of producing a cash flow.
There are several ways in which one can invest in commercial real estate. The upcoming section talks about the same.
Ways to Do Commercial Real Estate Investment
1. Direct Ownership of Commercial Properties
You may buy a commercial property individually or as part of a group, manage the property. Using the conventional method, It gives the investors full control over their investment and the ability to reap substantial profits. However, direct ownership requires significant capital and carries the burden of active involvement in property management.
Returns might vary depending on factors such as location, property type, and market conditions. The annual average return can be between 8% and 10%.
2. Fractional Ownership
Fractional ownership is one of the best investment options in India. Fractional ownership offers an opportunity for investors to come together and jointly own commercial properties, like office buildings, retail spaces or industrial complexes by pooling their funds. This is a new trending concept in the Indian market which provides opportunities to small investors to purchase a share in the big commercial properties which was earlier out of reach for the small investors. Investors can engage in fractional ownership via fractions ownership platforms like Assetmonk with a minimum of Rs. 10 lacs. Expected returns depend on the property’s performance, with potential returns of 7% to 9% on an annual basis.
3. Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts, or REITs, provide investors with the opportunity to invest in a diversified portfolio of commercial properties without directly owning them. Not only do REITs generate a steady income, but they are highly liquid and offer a diverse portfolio. The minimum investment amount spans between Rs. 10k to Rs. 15k. REIT returns depend on rental income and property appreciation. Historically, REITs have provided annual returns of around 8% to 10%.
4. Commercial Property Flipping
Commercial property flipping can be an appealing approach for investors seeking shorter-term gains. This involves purchasing undervalued properties, making strategic renovations or improvements, and selling them for a profit within a relatively short time frame. The success of this strategy depends on accurate market analysis, effective project management, and a solid understanding of buyer preferences.
5. Commercial Real Estate Structured Debt
One of the safe investments with high returns in India is real estate structured debt, providing fixed-income prospects backed by secured real estate assets. Structured debt involves lending money to commercial real estate developers or property owners in exchange for regular interest payments. It serves as an excellent option for short-term investments and ranks among the high-return investment plans available in India.
Returns are predetermined and typically range from 12% to 20% annually, making it an attractive option for those seeking higher fixed returns. For instance on innovative platforms like Assetmonk, investors with a minimum investment of 10 lacs can gain an assured IRR of 17 percent.
- Co-investing and Joint Ventures
Co-investments and joint ventures involve pooling resources with other investors to co-invest in commercial real estate projects. This approach enables investors to access larger and more lucrative deals while sharing the associated risks and rewards. Co-investing in real estate can be advantageous for investors, but for it to be profitable, it needs to be well planned and executed thus investors must carefully evaluate potential partners, negotiate clear agreements, and maintain effective communication throughout the investment process. Expected returns depend on the project’s success and can vary widely. Investors may target returns of 12% to 15%, but it’s important to note that higher returns often correspond to higher risks.
Short-Term Vs Long-Term Investment in Commercial Real Estate
One big dilemma of real estate investments for beginners is the many types of real estate investments available. They are not sure whether to choose a long-term investment option or a short-term real estate investment. Both options have their benefits and risks.
In most asset classes, short-term investments last less than a year. However, in the case of commercial real estate, a short-term investment would last between two to three years, whereas a long-term investment is often one lasting five years or more.
Commercial real estate is an illiquid asset class that only provides quantifiable returns when long-term investments are taken into account. That is the primary reason why it is advised to get into commercial real estate investments only if you are looking at longer tenures. Longer lease terms contribute to the investment’s growth through capital appreciation by increasing the asset’s worth over time. This translates to better returns for the investor over the investment period.
For any commercial property, the investment period for two to three years can offer a return of 3% to 4%, while gross yields across investment periods of five years or more can be from 6% to 10%, as per the 2021 statistics shared by Knight Frank India.
No matter how you choose to invest in Real Estate you will never regret investing in it. Investing in Real Estate property is one of the best decisions you’ll ever make.
Analyzing Commercial Real Estate Investment Trends in India
The estimated size of India’s CRE market currently stands at USD 33.62 billion, poised to reach USD 87.57 billion. The growth is anticipated to continue at a remarkable CAGR of 21.1% during 2023 – 2028.
Source: Mordor Intelligence
To make informed investment decisions, it’s crucial to understand the current trends shaping the commercial real estate market in India. Let’s explore some of the notable trends:
Rise of Co-working Spaces
The rise of co-working spaces has revolutionized the commercial real estate landscape in India. The demand for flexible workspaces is rising along with the gig economy, which makes investment in co-working premises a lucrative option. This trend provides opportunities for both small investors and institutional players.
Integration of Technology
Technological advancements have had a major impact on the commercial real estate sector. From utilizing artificial intelligence and data analytics to enhance property management to implementing smart building technologies, investing in tech-driven properties can provide a competitive edge and optimize operational efficiency. In India, several new-age alternative investment platforms, such as Assetmonk make it easier to invest in real estate by offering an easy-to-use interface, transparent pricing, and hassle-free property management.
Sustainable and Energy-Efficient Buildings
Sustainability has become a key focus in the commercial real estate industry. In the long term, green construction methods and energy-saving practices are not only economical but also environmentally responsible. Investors who prioritize sustainability can capitalize on the growing demand for eco-friendly commercial spaces.
Retail Investors’ Expanding Role in Commercial Real Estate
Commercial real estate in India is undergoing a major transformation and one of the innovative developments leading the way is fractional ownership. Fractional ownership allows investors to invest in CRE at a lower cost. Think of it as buying a piece of a larger property, like owning a share of a shopping mall or office building. According to a Knight Frank report, the market size of fractional ownership in India was USD 5.4 billion in 2020 and is projected to reach USD 8.9 billion by 2025, at a CAGR of 10.5%.
Commercial real estate investment can be a rewarding avenue for wealth creation and financial stability. From direct ownership and fractional ownership to REITs and real estate crowdfunding, investors have a spectrum of strategies to choose from. Considering factors like market demand, location, regulations, economic outlook, and risk assessment magnifies the chances of successful investments. By diversifying your commercial real estate investment portfolio, you can position yourself for potential growth and income in India’s vibrant real estate market
As can be seen above, structured debt is one of the best real estate investment options in India offering a massive return. Ready to embark on your commercial real estate investment journey? Assetmonk is a unique alternative investment platform offering high-potential long-term and short term real estate investment opportunities to value investors. Our primary expertise lies in offering individualized guidance and carefully curated fixed-income investment opportunities supported by real estate assets. With a minimum investment threshold of 10 lakhs and an assured IRR of 17 percent, Assetmonk provides exclusive and tailored investment options to its valued clients.