Things to Know Before Investing in Commercial Real Estate in Faridabad

Commercial real estate is a great investment tool that can not only offer great returns but also generate good cash flow for you, and the city of Faridabad, with its current growth trajectory, cannot be ignored. But there are a few things to know before investing in Commercial Real Estate in Faridabad. Let us understand commercial real estate investing in a better way before we explore Faridabad as an investing option.

What is Commercial Real Estate?

Commercial real estate is a type of property used for commercial or business purposes only. There is a diverse range of properties that can be classified as commercial real estate. It includes hotels, office spaces, resorts, malls, SCOs, strip malls, restaurants etc. You can also invest in commercial real estate through the direct route where you take complete ownership of the property or through the indirect route where you do not get ownership but only rent. Though the risks of investing in commercial real estate are more significant than the risk involved in residential real estate, the returns are also higher. There are also ways in which this risk can be mitigated. We will investigate it here in more detail.

How to Get Started in Commercial Real Estate Investing?

Commercial real estate investing requires a large amount of capital if you want to acquire complete ownership of the property. There are also ways in which you can acquire fractional ownership of commercial property through Real Estate Investment Trusts (REITs).

Also Read: 5 Things you Must Consider Before Buying a Commercial Space

Direct Investment vs Indirect Investment

Direct investment
Direct investment or complete ownership requires a hefty sum and a substantial knowledge of the real estate market. A proper study of the locality, infrastructure, connectivity, and amenities is required before you invest in commercial real estate. If you have gathered all the relevant information, then the investment can generate huge returns for you.

Indirect Investment
This route is taken through Real Estate Investment Trusts (REITs). Modelled after Mutual funds, REITs are companies that pool individual investors’ money and then invest the whole corpus in commercial real estate. The investment might be vertical-specific or diversified. Properties in a REIT portfolio may include apartment complexes, data centres, SCOs, healthcare facilities, hotels, infrastructures—such as fibre cables, cell towers, and energy pipelines, office buildings, retail centres, self-storage, and warehouses.

Pros and Cons of Commercial Real Estate (CRE) Investing

Pros of CRE Investments
The Pros of CRE investing are numerous, but some of the significant ones are listed below

High rental Returns – The rental return from CREs is in the range of 11-12% of the value of the property, while from residential real estate, it is in the range of 1-2% of the property.

Consistency – The returns from the CREs are consistent as compared to ‌residential real estate as CREs are taken up by businesses with well-established business models which generate consistent revenue.

Long-term commitment – CREs are leased out with a long-term plan of at least ten to twenty years while the residential real estate commitments are short term.

Purchasing Value- A commercial property is more valuable over a long term as compared to a residential property. The appreciation rate associated with a commercial property is always greater than a residential property. Infrastructure development in a region can help increase the value of a property manifold.

Cons of CRE Investments

Property Management – Commercial real estate investment has additional management costs associated with it. Unlike fixed deposits or other safe instruments where you can invest and forget, there are running costs associated with any property. Costs may include and are not limited to structural maintenance charges, electricity charges, registration taxes, municipal taxes, ground rent etc. These charges are higher when compared to residential real estate.

Initial Investment- The initial investment cost associated with any commercial project is quite high when compared to residential real estate. You need to assess your risk-taking appetite before plunging into commercial real estate. It is also important to provision for some savings which can keep you afloat in case of a bad investment.

High Investment Requirement– The total investment associated with commercial real estate runs into millions. You should assess your capability and not invest an amount which dents your lifestyle or daily expenses.

Right property selection – The market needs to be researched extensively regarding site, infrastructure, connectivity, amenities, etc. associated with the property. The current infrastructure and the upcoming infrastructure must also be assessed so that the value of your commercial assets goes up.

Should I Invest in New commercial projects in Faridabad?

Now that you have looked at all the pros and cons of commercial real estate investing, let us consider why things are looking up for Faridabad. It is one of the upcoming real estate markets in Delhi NCR. Here are five reasons why you should invest in new commercial projects in Faridabad.

• Connectivity- Faridabad enjoys uninterrupted connectivity with New Delhi and Noida via Delhi Mathura Road. It is present at an hour’s drive from these two cities and has an excellent transport system which also includes 24X7 cab services and connectivity through the violet line of the metro. It is also close to another IT hub, Gurugram and is also in proximity to the educational hub of Delhi NCR, Greater Noida.

• Physical and social Infrastructure– Apart from prominent schools and hospitals, Faridabad has a variety of shopping complexes, malls, multiplexes etc. which have come up in recent times. The city also has a vast network of well-laid roads and an efficient sewerage system. There has been an influx of reputed real estate builders in the city which has seen real estate rates rising.

• An IT Hub – IT companies, both established and startups, have been setting up shop in the city because of its infrastructure and connectivity to Delhi NCR. The demand for commercial spaces will only increase further in the coming years.

• Upgrading Lifestyle- As the economy of the city has been improving, people have been exposed to a superior lifestyle because of their trips abroad. This has led to demand for high-end commercial spaces which is only going to increase in the long run.

• Retail Boom –The upgrade in lifestyle has led to an increase in demand for shopping complexes, upscale dining and hanging out places in the city. New Shopping destinations like World Street have come up to cater to this rising demand which is only going to increase in the coming years.

Also Read: Everything you Need to Know About Stamp Duty on Property

All these options make Faridabad a lucrative option for commercial real estate investing.

FAQs about Commercial Property Investment

a. What is commercial real estate investing?
Investing in commercial real estate includes investment in product verticals like office spaces, manufacturing units, shops, malls, multiplexes, SCOs etc.

b. What is better, commercial real estate or residential real estate?
Commercial real estate requires larger capital than residential real estate but also offers better return and greater appreciation of property. So, if you have the requisite capital and can withstand greater risks then it is better to invest in commercial real estate.

c. What type of commercial real estate is the best investment?
Office spaces are the best commercial real estate investment as they have lengthier leasing periods, and since the space is taken up by enterprises which have established business models, it ensures consistent returns. Retail real estate is also showing signs of offering substantial returns as people are turning towards better lifestyle choices.

d. What makes more cash flow commercial or residential real estate?
Commercial real estate generates more cash flow as the area leased out is bigger than residential real estate and since it is leased out to companies, the rents are higher as compared to residential properties.

e. Is it a suitable time to invest in commercial real estate?
Real estate in general has picked after the pandemic and commercial real estate is also on the upward trajectory, so it is a good time to invest in commercial real estate, after one has done his own market research.