Faqs

Commercial property is a term used to describe all types of properties that are not residential, including offices, retail spaces, and warehouses. Commercial properties are usually owned by companies or individuals who use them for business purposes.
Commercial properties can be divided into two broad categories – industrial and non-industrial. Industrial properties are designed for manufacturing purposes, while non-industrial ones are used for commercial activities like offices or shops.

Most commercial properties are bought by businesses in order to use them as their main premises or head office. However, some individuals may also invest in commercial property as a way of generating income from renting out their units to other companies.

Reasons to invest in commercial property

Long Tenure & Stable Investment
Commercial assets, such as offices, shops, warehouses, and other commercial properties, are secure investments because they can generate recurring rental revenue. Commercial tenants typically have longer lease terms, providing investors with a more reliable and predictable stream of income. Office spaces generally tend to be good investments for at least four to five years. If the company does not have a head office or corporate office yet, in such cases, the lease tenure could go up to 10 years with the possibility of subsequent renewal at the tenant’s request. Pre-leased commercial properties being already rented to tenants reduces vacancy risk.

Generating Passive Income
It’s worth noting that large passive income from commercial properties, along with appreciation, can result in a total return of up to 15% per year, assuring a consistent cash flow for investment. Commercial real estate investment is in high demand and provides a superior rental yield. This rental income is stable, and you have complete control over selecting the right property based on your ROI expectations, making real estate an ideal passive income source.

Business-Friendly Policies
The commercial sector has seen a massive turnaround as a result of the Central Government’s business-friendly initiatives, such as the Make in India scheme and the increasing influx of Foreign Direct Investment (FDI) following the implementation of RERA. It is encouraging to observe an improvement in the Indian economy, which has prompted businesses to increase their demand for commercial real estate and expand their operations.

Easy to Leverage
Lease rental discounting (LRD) allows property investors to use leverage to buy pre-leased/pre-rented commercial properties. LRD is a term loan given by banks using rental receipts as collateral and is usually available at interest rates of 7-9% per year. LRDs also allows property investors to borrow up to 65-70% of the property value. The advantage is that the EMI for the loan is usually less than your monthly rental. As a result, a one-rupee investment can directly yield a four-rupee asset when the loan is paid off with no outflow from your pocket during the term of the loan. Lease rental discounting can also be used by rental property owners to provide the much-needed liquidity that seems to be otherwise lacking in immovable assets.

Professional Tenants
Lock-in period for a commercial property may generally vary from three years to nine years, providing stability in your returns and protecting your investment from floundering. The tenants in CRE have mostly established businesses, hence it is easier to manage the tenants. The investor (landlord) and tenant have a more business-to-business connection, therefore interactions are more professional and courteous. As compared to renting out your residential property to a family or individuals where personal interaction is required.

Trend to Stay
Flexible work spaces have become a trustworthy option for employees and enterprises since they allow individual flexibility, and determine the future of the office in India in the years to come.

In summary, commercial properties should be considered as part of an individual’s investment portfolio to earn superior passive income and with the right use of leverage commercial property investment can be a great wealth-building tool.

To calculate rental property ROI, you need to first define your investment priorities and goals. Ask yourself: Are you investing for cash flow or are you investing for appreciation?

Generally, the average return on investment is anything above 15%

The most important factor is, unsurprisingly, the investment property’s location. We’ve all heard the golden rule in real estate investing: location. Where you buy a rental property will have a drastic impact on your potential profits.

Another factor that affects what is a good ROI on investment property is whether the property was paid for in cash or financed via a mortgage. As you’ve seen from our previous examples, the potential profit you can expect from a property differs based on the financing method.

Carpet Area

An area that can be covered by carpet or net usable area is called a carpet area. The carpet area is the distance between the inner walls. Common areas such as the lift, lobby, etc. are not included under the carpet area.

According to Real Estate Regulatory Authority (RERA), Carpet area means the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah areas, and exclusive open terrace areas, but includes the area covered by the internal partition walls of the apartment.

Super Area

The Super Built-up area of a premise is the saleable area, which includes the carpet area, along with the terrace, balconies, areas occupied by walls, and area occupied by common/shared construction (e.g. lift, stairs, etc). In some cases, builders include amenities like a pool, clubhouse, and garden. Builders use the loading factor on the carpet area to arrive at the super built-up area.

RERA Stands for Real Estate
Regulatory Authority. The bill of the Parliament of India Act was passed on 10 March 2016 by the Rajya sabha. This act became effective on 1st May 2016. Only 59 sections were notified, and the rest of the 92 were effective from 1st May 2017.

The central aim of RERA is to create a more equitable and fair transaction between the seller and the
buyer of properties, especially in the primary market. Also, the main purpose of implementing this act was to protect the home purchasers as well as in order to boom real estate investments.

Meaning of RERA-approved

RERA approved simply means RERA registered. Approvals, land titles, insurance, etc., are the guidelines that every builder has to follow to register their project.

The major features focused by RERA include:

Security

Transparency

Fairness

Quality

Authorization

All transactions that involve the sale of immovable property should be registered in India to ensure the transfer of clean title to the owner. The registration of a property agreement consists of the preparation of documents and paying the applicable stamp duty registration charges for the BBA registration to be legally recorded at the Sub-registrar’s office. In many states, the Builder Buyer Agreement (BBA) is not registered. However, RERA mandates that the homebuyer will have to register the Agreement for sale at the time of booking with 10 percent money. The homebuyer will pay the stamp duty once the conveyance happens. The fee paid at the time of booking is adjustable in the stamp duty charges. This provision is homebuyer friendly as the clauses of the Builder Buyer Agreement are binding on the developer.

Stamp Duty is the tax paid for the legal recognition of property. It is paid by the property buyer. Home Buyer can claim tax incentives of up to some percentage on stamp duty and registrationcharges on a new property purchase or construction of a house.

Nonjudicial stamp paper has to be purchased in the names of one of the parties who is liable to pay the stamp duty, registration fee, etc for the transaction. For ex. if you are purchasing a flat/property, an agreement has to be made on stamp paper purchased by you in your name. If a lawyer is one of the parties to the transaction and is liable to pay stamp duty etc, stamp paper can be purchased in his name. If he acts only as a lawyer to one of the parties, purchasing stamp paper on his name is not correct.

In India, stamp duty and registration fees are expenses that are incurred when you purchase a property. These fees may be eligible for an income tax deduction under certain circumstances.

To claim an income tax benefit on stamp duty and registration fees, you will need to file an income tax return and include the fees as a deduction on your tax return form. The maximum amount of stamp duty and registration fees that you can claim as a deduction is INR 2,50,000.

You may be able to claim this deduction in the year in which you incurred the expenses, or you may be able to spread the deduction over multiple years. However, the specific rules for claiming this deduction may vary depending on the circumstances of your purchase and the timing of your payment of the stamp duty and registration fees.

It is recommended that you consult with a tax professional or refer to the Income Tax Department’s guidelines for more information on how to claim this deduction and the applicable rules and restrictions.

Property is considered a capital asset and Capital Gains Tax is levied on the gains arising from the sale of the property. Such gains are calculated by adjusting the inflation rate, transfer, and renovation charges.

The main difference between freehold and leasehold properties pertains to land ownership and control. As an owner, you can mostly do what you wish with your home, provided you abide by the local planning rules. In the case of a leasehold property, the ownership is given by the government for a tenure of 99 years. It is possible to extend the leasehold to 99 years if the owner, which is the State in most cases, wishes to extend the lease, and you have to pay a price for the lease extension. Freehold properties, on the contrary, provide complete ownership without any intervention from the State or a third party.

Original copies of the chain of title agreements and Building Plan approvals

Original registration and stamp duty receipts

Possession Letter

Original share certificate (In case of societies)

Proof of payment of all dues like maintenance charges, electricity bills, phone, water and property taxes up to the date of handing possession

NOC from the Society or other concerned body confirming no objection to the transfer

Location

In certain markets, more properties are available to lease than to purchase, so leasing provides businesses with more options. Leasing may also enable users to occupy spaces in a location where they couldn’t afford to buy property.

Flexibility

Leasing can provide greater flexibility to the owner to get a better brand for their property.

Rental

With leasing, owners don’t need to worry about searching for the tenant. The brand takes ownership to get the leasing done with the brand/corporates.

Long term return

With the help of brand leasing, the owner gets long-term assurance to get returns against their property.

Association with brand

Owners don’t need to search for tenants however the developer invests their efforts in getting the property leased.

Below are the stages to buy your commercial property.

1. Prelaunch – Investing at this stage includes more risk because there is no rera registration of the project has been done. In short, we can say that the sale of the project will be done on the basis of verbal communication & trust.
2. On Receipt of RERA – This is the stage when the customer can officially do the purchase in the project basis the rera documentation.
3. On the start of construction – At this stage buyer can purchase the property. This stage is considered the right time for investment in any project because the builder has completed all the legal formalities for the construction and core work at the site has just been started. At this stage,customers get a decent appreciation ofthe property and a low level of risk for the construction.
4. Near to possession – This stage is recommended if you are going to use your property for yourself. At this stage, the risk is low for the delivery of the project however it costs a huge amount per sq.ft.
5. After the possession–This is the stage when the property has reached its peak cost. Again this stage is also recommended for self-usage only. As the owner of the property you may not get great property appreciation however can expect a good amount of rental against the property.

Below are the factors that elaborateon the benefits of leasing a commercial property:

Brand Association: an owner connects with a brand/organizationfor the leasing of commercial property however in the case of the residential property owner has to connect with the general public to get tenants for their property.

Rental: commercial properties have more rent in comparison to residential properties.

Lease tenure: Lease tenure for commercial property is longer in comparison of residential property.