Where To Invest For Higher Returns: A Look At Commercial vs. Residential Real Estate

In India, amid all market dynamics, real estate investment is a popular investment asset category. Real estate investments are advantageous because they are tangible assets that have the potential to rise in value over time. They also generate monthly rental income, act as a hedge against inflation, and offer a number of tax advantages, including deductions for home loan interest under Section 24(b) and principal repayment under Section 80C of the Income Tax Act, portfolio diversification, and Foreign Direct Investment (FDI). But when it comes to the subject of whether the type of real estate investment-commercial or residential-can yield higher returns, we've compiled the responses from market analysts by interviewing them.

Darshan Govindraju, Director Vaishnavi group

In the midst of a burgeoning population and rapid urbanization, India stands as a top choice for those in pursuit of robust returns on their investments. The real estate market in India presents a dual advantage - it not only promises a steady stream of rental income but also demonstrates a propensity to appreciate in value with time, rendering it an attractive avenue for long-term wealth creation. India's real estate market beckons investors with its promise of considerable yields and the potential for capital appreciation, making it an enticing destination for asset growth.

What makes India an alluring haven for real estate investment is its unique blend of short-term profit potential with long-term constancy. It offers a fertile ground where your assets can thrive, safeguarding against inflation and ensuring steady growth. Covering various segments, such as commercial, retail, and residential, India's real estate sector acts as a magnet for those seeking diversification and predictable returns. It's the preferred destination where your assets can truly work to your advantage.

Sunil Pareek - Executive Director - Assetz Property Group

Real estate investments, which have a share of wallet of about 50% of gross domestic savings, remain and will continue to be the most secure, tangible, and personally resonant option for investment. Newer products to invest in this space, like the emerging fractional ownership product, REITs, and a few RE-specific AIFs, are also gaining ground. The demand for and income allocation in this space are sustained despite increases in prices and interest rate hikes.

The Reserve Bank's loan data and other property consultants' information and reports on housing sales and new projects in major cities clearly indicate that the real estate industry is rapidly gaining momentum and hitting historic scales. Specifically, housing credit outstanding, which includes priority sector housing, saw a remarkable 37.4% annual increase in July, surpassing Rs 24.28 lakh crore, as revealed in the RBI's 'Sectoral Deployment of Bank Credit-July 2023' data, which is one of the pointers to the preference towards real estate.

Ashish Agarwal - Co-Founder, Enzyme

Commercial real estate stands out as a favored investment asset class for several compelling reasons. Firstly, it promises the potential for stable and appealing returns. Unlike certain other investment avenues, commercial real estate can yield a consistent stream of rental income, often through enduring leases with reputable tenants. This reliable cash flow offers investors a steady source of income, making it an enticing choice for those seeking regular returns on their investments.

Secondly, commercial real estate can function as a safeguard against inflation. As the cost of living escalates, so do rental rates and property values. This intrinsic protection against inflation can help preserve and potentially augment an investor's wealth over time. Furthermore, commercial properties tend to appreciate in value, especially in prime locations, presenting the possibility of capital appreciation in addition to rental income.

Moreover, incorporating commercial real estate into a portfolio can enhance risk management, as it typically exhibits a low correlation with other asset classes such as stocks and bonds. This diversification aids in spreading risk and potentially enhancing overall portfolio stability. Taken together, these factors underscore why commercial real estate is an attractive and preferred asset class for astute investors.

Navin Dhanuka, MD & CEO, ArisUnitern RE Solutions

With the real estate sector witnessing growth driven by demand and value appreciation, the investment sentiment remains strong. Home buying sentiment is quite positive as people are either upgrading to bigger houses and second homes or seeking good assets for long-term value appreciation. Since in the last few years, new micro-markets have emerged as real estate hotspots, buyers are heavily investing in lands and plotted developments to get a fair share of the ongoing developments.

The HNIs and UHNIs are also investing in the growing luxury real estate segment apart from the core commercial assets and various emerging alternate asset classes. Besides, emerging vehicles like AIFs and REITs are also making the investment experience more structured, transparent, and democratic, thus creating more opportunities for investors. Right now, the sector as an investment avenue is more stable than the somewhat volatile stock and commodities markets, thus prompting a lot of investors to shift to the sector.

Shesh Paplikar, Founder & CEO, BHIVE Group

The stock market has become a preferred destination for investment. It has become a lot more common to invest in the stock market today than it was 10 - 20 years ago. Real Estate continues to be a good destination as well because real estate offers a lot of stability. A significant amount of wealth creation has always happened through real estate. Both wealth creation and the ability to keep the wealth there in a stable way is important. Everybody would not have the appetite for a higher risk and volatile stock market. And also real estate can generate consistent income especially commercial real estate that offers a much higher yield than residential real estate. We expect a lot of investors to start focusing more on investing in commercial real estate so that they can get higher yields.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.