Given the robust economic growth in the country, the real estate market trends have seen a resurgence in both its residential and commercial sectors. While both sectors have their own set of perks, the tug of war between the two continues to be on the hotlist of investors.
In this blog, we shall shed light on both commercial and residential sectors of the Indian real estate market to help you identify the one that can fetch you the most returns.
Residential Vs Commercial Real Estate: A Comparative Analysis
Residential assets might allure you, especially if you’re a first-time investor due to their simplified nature. However, you may feel more inclined towards commercial properties if you have the luxury of time and revenue! Here’s a detailed comparative analysis that can help you identify the best option.
1. Cash Flow
Residential leases have a greater scope for providing not just consistent but also optimal returns as compared to commercial properties. This is because the residential lease typically spans for 6-12 months, leading to regular tenant turnover and an increment in the lease with each new renter in addition to the dynamic market conditions.
In contrast, commercial leases, which have a tenure of 3 to 10 years, thus keeping you locked in for a longer period of time.
However, commercial properties usually have a higher ROI as the income is not limited to the property per se, but also from other sources such as parking fees, any special equipment or machinery, etc.
2. Demand and Recovery
With the growing population and parallel urbanization, demand for residential properties remains consistently high because the need for a house is indispensable. This also creates room for potential appreciation in the values, both for sale and rent.
On the contrary, commercial properties have lesser demand due to their high initial costs and complex procedures. Besides, they are easily affected by the ups and downs of the economy.
For instance, unlike the latter, the residential sector witnessed a swift recovery post the economic slowdown stricken by the global pandemic.
While the commercial sector was still facing the heat, reports suggest that in H1 2021, the residential sector exhibited a remarkable growth of approximately 70% across the eight leading cities of India, with sales reaching a total of a whopping 99,400 units!
Financing a residential property is often less tedious compared to commercial ones. Banks are also more willing to offer loans for residential properties as they are relatively less risky.
Additionally, the tenure for repayment of a home loan can extend up to 30 years, whereas, for commercial property loans typically have a 10-year limit. Also, in terms of loan margins, commercial property loans do not often offer as significant a margin as compared to residential assets.
Maintaining residential properties is simple as it typically involves dealing with individuals or families rather than businesses.
However, commercial assets have lesser operational hours as tenants use the property during standard business hours, resulting in fewer maintenance requests.
In the residential sector, you can choose from different types of assets, such as duplexes, flats, plots, penthouses, etc., depending on your budget, risk tolerance, and investment strategy.
Unlike residential assets, the valuation of commercial property is heavily dependent on the rental income that the property generates. If the demand for the workspace is high, rental rates will increase, thus increasing the overall worth of the commercial property.
Which One Should You Go For – Residential or Commercial?
Determining the best and most lucrative between residential and commercial real estate ultimately sums up the investor’s financial capacity and goals. If you’re a first-time investor looking for a low-risk and steady income in addition to flexible financing options, it would be wise to invest in the residential real estate market.
On the other hand, if you have a higher risk tolerance, a stronger purchasing power, and have enough time to oversee the property, you can invest in the commercial sector.
In the broader sense, the residential sector is a safe haven for real estate investors. It is promising given its innate potential for long-term returns and stability despite the ongoing economic turmoil.
Consider investing in eastern India’s largest residential township project based in Newtown, Swapnabhumi. It offers a lucrative opportunity for prospective investors and a wholesome residential experience for those seeking to buy their dream homes.