Looking for Commercial Property Investment in Hyderabad – 9 Simple Rules to Follow
Real estate has always been the most favoured places of investment for Indians, from long times. The real estate property investment is considered to be the best long-term investment; it can be a piece of land, plot, flat, agricultural land or a commercial space.
Economy & Commercial Space Trends
With the rise of IT and ITeS sector in India, leasing of commercial property had shown a steady rise in all Tier-I and Tier-II cities of India from last one decade. It has shown a strong resilience and remained positive in 2017 despite a series of policy reforms in the real estate sector.
After the impact of Brexit on businesses in Europe and radical policy changes by Trump administration in the US, directly affected the absorption of commercial spaces all around the world.
Despite of these challenges, Cushman & Wakefield reports have shown that in the year 2017, India's the commercial space net absorption has been more than 30.6 million sq ft and with almost 50 deals has been for above 1,00,000 sq ft each. This shows that India's commercial real estate property market is much healthier and currently there is much scope for growth and expansion.
The companies which leased large office spaces in the last year included TCS, Alibaba, Amazon, Microsoft, Accenture, Deloitte, Google, Atos Origin and many more.
Normally, we consider investing in residential property a bit easier than commercial real estate property, which may not be true.
9 Simple Rules to Consider Before Investment
If you are looking for long-term investment in a commercial property segment of the real estate market, then check out these simple rules before buying it.
1. Location of the Commercial Property
Commercial Properties provide returns through two avenues i.e. Rent and Capital Appreciation. Both these factors are heavily dependent on the location of a commercial property. The trick is to always invest in that location areas’ where the jobs are more stable or vacancy rate is less than 5%. This helps in steady rent and capital appreciation.
2. Quality Matters
Commercial properties with better quality, infrastructure and facilities always attract better rent returns and premium tenants. This will ultimately assist in better tenant retention, higher capital appreciation and rent returns. Multinational tenants don't mind paying a few bucks more for a better quality building. Commercial building certified with LEED Gold or Platinum ratings or with a better structural design for commercial spaces, fetch better returns and can be sold faster.
3. Demand Vs Supply
One must analyze the demand and supply market of commercial properties in the market before committing to buying it. Each city has a different kind of micro-market, which has a specific amount of office spaces - some are completed, leased or upcoming (supply). A high supply affects the rent cost of both old and new buildings.
4. Judge Actual Rent in Market
One should research on the actual rent prices being charged in the market and how much are they practical to be paid by the tenant in a long time. It is safe to invest in properties with lower price tags than to buy an overrented asset.
5. Quality of Tenant
A good tenant can make a lot of difference in bringing value to your commercial property. As good tenants pay their rents on time, stay longer, pay higher deposits and increase the value of property in the long run. Try to opt for blue-chip multinational companies, registered companies and avoid smaller unknown companies.
6. Better Interiors
Commercial buildings with better flooring, electric fittings, ceiling, air conditioning, interior cabins, conference rooms, washrooms, lobbies, elevators, lifts and parking facility, etc. fetch premium tenants with better returns to investors.
7. Lease Policy
Commercial properties are generally leased for 9 years or 15 years. In case of 9 years, the lease can be escalated, every 3 years or 5 years in case of 15 years lease. There is also a provision called lock-in period (for 3 or 5 years) during which the tenant cannot vacate the property. These factors need to be analyzed before investment. Longer the lock-in period, it brings better returns to the investor.
8. Security deposit
Security deposits in commercial properties can vary from 10 to 12 months' rent. Tenants looking for lesser security deposit options means that they have cash crunch issues and may not be regular in paying rents on time.
9. Diversified Investment
Diversified investment of your savings reduces the risk factor associated with commercial real estate property investment. If in case tenant vacates, the rents will stop while the maintenance payments, property taxes, etc. will have to be paid on time by the property owner. Therefore, it is considered wise to invest in multiple properties (diversified) - residential as well as commercial properties which ultimately reduces the risk associated with it.