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India is witnessing a revolution of sorts in the commercial real estate scenario with infusion of new technology, greater compliance with regulations and newer design and style elements. The country is witnessing good GDP growth and there are a number of large corporates based in the West which are trying to enter India and establish their operations. This has made commercial real estate a hot proposition in the country. Even developers that have traditionally concentrated on residential real estate are also getting into commercial development. We take a look at some of the guiding principals making investment in a commercial property in India:
You are reading: Guide For Investing in Commercial Property In India
RBI Rates
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The rate of interest announced by the Reserve Bank Of India like Repo Rate have a direct impact on demand for commercial properties in India and one needs to keep a track of the rates decided by the central bank from time to time for making sound investment decision. The lower the repo rate, the higher will be the business activity in the country and consequently higher demand for commercial property. The current repo rate, also called the benchmark interest rate, stands at 6.5 percent currently.
Sale of Commercial Vehicles
Usually the volume of sales of commercial vehicles in India reflect the health of the economy and when the sale is high or even steady, it is a good time to invest in commercial property. The sale volume is a barometer for strength in the economy and commercial vehicles sales have grown 19 percent in 2017-18 and are expected to grow 24 percent in the current fiscal (2018-19). The GDP itself is expected to grow at 7.2 percent in the current financial year, the fastest in the world among developing economies. This will drive demand for commercial property.
3-30-300 Model
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A thumb rule of 3-30-300 decides the recurring cost in a commercial set up anywhere in the world and India is no exception. This rule states that, an organization spends approximately USD 3 per square feet every month for facility management, USD 30 per square feet every month for month for rent and USD 300 per square feet every month on human capital. While the expense on the human capital may not be known for the entire building, an investor can check if the facility management cost and rental cost follow this rule, that is, if the expense on facilities and their upkeep is about a tenth of the rental then the building can be following the model and can be invested in. On the other hand, if the building is old and there are large expenses on the upkeep of the building, then investment in such a building should be avoided.
Provision for Safety Features
Commercial Buildings which have fire prevention systems, earthquake resistant structures and the like are likely to get greater rentals and, hence, are more suitable for investment. Projects that have greater compliance with law should be the ones where investment can be made. A building which does not comply with zonal laws and local regulations may also end up in getting all the investment blocked at some stage with no exit route.
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