Real Estate in India 2023: Tips to earn your second income through real estate | Commercial vs Residential - Which is a better source for rental income?

Real Estate in India 2023: Which sort of real estate investment is more advantageous if earning a second income from rents is concerned - Is it commercial real estate or residential?

While both the real estate investment strategies have significant advantages, there are a few basic things one should keep in mind before making any real estate decision. These include tenant availability, location, operational costs among others.

Investing in commercial real estate in India can be a better investment strategy than residential properties for several reasons. Commercial real estate investments typically provide higher returns than residential properties.

1) Invest in REITs: Hari Movva, Senior Vice President, SILA, said, “We believe the best way for retail investors to participate in this segment is through REITs. At current valuations REITs offer reasonable return through dividend pay-outs. The demand for boutique offices and retail spaces will continue to be robust as they are driven by domestic consumption theme.”

2) Retail Space: An investor can rent out retail spaces to tenants, such as restaurants, retail stores, boutiques, and more. The investor would collect rent from the tenants and generate a steady stream of income.

3) Investing in Self-Storage Facilities: Investors can purchase self-storage facilities and rent out storage units to customers. This is a great way to generate income from commercial real estate.

According to Siddharth Maurya, Resource Specialist, Expertise Real-Estate and Fund Management, “India has a burgeoning economy and an increasing number of businesses, presenting a favorable market for commercial real estate. Commercial real estate in India offers high returns on investment compared to residential properties due to higher rental incomes and appreciation value. Investing in commercial real estate can offer diversification to investors' portfolios, reducing their overall risk.”

“Investing in commercial real estate in India can be a lucrative venture if done right. Investors must weigh the benefits and challenges to make informed investment decisions. Conducting thorough research, including hiring professional services such as experienced brokers, attorneys, and property managers, is critical to successful investments”, he added.

Commercial rental income - Good source of passive income

Commercial real estate usually has a higher rental yield than residential properties.

Commercial properties tend to have longer tenancy periods than residential properties. This means that investors can enjoy a steady stream of rental income over a longer period of time. “Commercial properties tend to have long-term leases of up to 5-10 years with notable businesses, providing investors with a stable source of income. Commercial real estate investors in India can benefit from tax advantages such as depreciation and deduction of interest on loans,” said Suren Goyal, Partner, RPS Group.

Commercial real estate investments can also offer greater potential for growth than residential properties. This is due to the fact that commercial properties are often located in areas that experience rapid economic growth, such as business districts and technology hubs.

Points to consider before commercial real estate investment

Suren Goyal, Partner, RPS Group said, the commercial real estate sector in India is susceptible to market fluctuations, which can cause changes in rental rates and demand. Purchasing commercial real estate in India can be complicated, as legal procedures can be time-consuming, expensive, and challenging to navigate, Goyal noted.

Due to higher capital requirements and increased tenant default risks, commercial real estate investments carry a significantly higher level of risk than residential ones.

Commercial real estate markets are frequently influenced by regional or local trends that can lead to unbalanced or unpredictable cycles.