• The commercial segment saw a total PE inflow of nearly USD 2.8 bn in 2018 – up from USD 2.20 bn in 2017
  • Office yields are 12-14% PA, rental yields for housing 2.5-3.5%
  • Residential revival depends on returning investor interest

 Anuj Puri, Chairman – ANAROCK Property Consultants

If the prolonged slowdown in the residential was not bad enough, to begin with, major policy overhauls over the last five years – DeMo, RERA, GST, amendments in the Benami Transactions Act etc. – literally paralysed the residential segment.

While any policy change brings with it some amount of teething pains, the residential segment took a prolonged hit because it had attracted the bulk of black money in the sector. Commercial real estate was far less affected, if at all.

Residential was also far less organized than the commercial office segment. Largely driven by IT/ITeS and BFSI sectors, the commercial real estate segment has been quite transparent and predictable – the primary criteria for foreign investors’ confidence.

Commercial Vs.

Anuj Puri, Chairman – ANAROCK Property Consultants

In the past, the ROI on housing assets had been quite satisfactory and in some cases even spectacular, depending on the aptness of choice in terms of specific location, configuration, amenities and builder’s brand.

While rental yields for residential assets in India have historically been low, capital appreciation alone was a sufficiently dynamic prospect for most real estate investors.

However, the hype around residential property investment has fizzled out over the last 2-3 years, with a prolonged slowdown severely impacting capital appreciation. As of now, investors with the financial wherewithal and requisite understanding of the commercial real estate space find office assets far more attractive, and for good reason.

In the first place, office properties in the right location and project attract quality corporate tenants and can, therefore, yield very good rental returns over prolonged periods.

The average rental yield of a good commercial property falls in the range of 6%-10%, whereas the rental yield of a residential property is dismally low in the range of 1.5% – 3.5%. Simultaneously, capital appreciation can also be more than satisfactory for the right office assets.