Investing in real estate can be a lucrative option, but it requires careful consideration of various factors. With so many investment opportunities available in the market, one needs to find the best investment avenue for themselves. One important factor to decide is whether to invest in commercial property directly or through Real Estate Investment Trusts (REITs). Both options have their advantages and disadvantages, and understanding them can help investors make an informed choice.
Commercial real estate structured debt is the answer if you’ve been wondering how to start investing in commercial real estate or how to invest in it with little money. If you’re looking to invest in commercial real estate structured debt, invest it via alternative investment platforms like Assetmonk. Via Assetmonk, you can invest with just Rs. 10 lakhs.
Commercial properties are the ones that are used for business / non-residential purposes or income generation (by selling / leasing). Commercial real estate investment refers to any investment made in such properties with the goal of making a profit.
Compared to most other investment instruments, Commercial real estate investments are thought to be safe and secure investment avenues that yield higher returns. Another factor influencing buyers’ inclination for commercial properties is consistent, high rental income. International agencies have praised India’s well-crafted policies, which have contributed to the country’s economic stability.
According to a report by Mordor Intelligence, The India Commercial Real Estate Market size is estimated at USD 33.62 billion and is expected to reach USD 87.57 billion, growing at a CAGR of 21.1% during 2023-28.
The average commercial property rental yield in India ranges from 8-12% vs residential properties, which yield a rental income between 1-2%, i.e. 4 times lesser yield. The potential for profit on a CRE investment varies greatly by region.
Through alternative investment platforms such as Assetmonk, investors can participate with a minimum investment horizon of 36 months with a remarkable internal rate of return (IRR) at 17%.
Commercial properties are typically leased for periods of 10 to 20 years, with the possibility of subsequent renewal. In addition, yearly appreciation of the rental value is a clause found in lease agreements. Thus, The commercial property owner is guaranteed steady and predictable returns making commercial real estate investment a great avenue for Passive income.
The fact that commercial properties require no furnishing costs is one of their most appealing aspects. If you give the property to corporate tenants, they will furnish it to suit their preferences and needs. This is because branding is essential in a commercial space. Also, corporate clients have their guidelines to set up a proper infrastructure at the property they occupy.
Income from traditional investment options tends to become positive or negative depending on fluctuations in the financial markets. However, because it is unrelated to fluctuations in the stock or bond markets, Commercial real estate investment is unaffected by the performance of any other source of investment.
When compared to other property types, CRE offers exceptional long-term appreciation. Additionally, Investing in a premium commercial property through fractional ownership or Real Estate Investment Trusts (REITs) may yield higher returns at a significantly lower and more affordable investment.
Outright ownership of commercial property will provide you total control over all aspects of the asset, assuming you purchase it right away. Greater potential returns on investment are possible with direct ownership—as long as the property is selected carefully. However, it requires in-depth knowledge or expert guidance from a property expert.
Direct ownership of commercial property comes with other responsibilities of property maintenance, tenant relations, and compliance with legal and regulatory requirements.
This can be time-consuming and may require significant resources. Commercial properties are also frequently more costly than residential ones of the same size, which makes them appealing to investors with higher capital pools.
INVESTING IN REITs
REITs offer an alternative way of investing in commercial real estate. Through these investment vehicles, people can own a fraction of large-scale commercial properties.
REITs offer several advantages to the investors, including regulatory oversight, greater liquidity, lower investment ticket size, property diversification, and counterparty risk redressal.
One can diversify their real estate holdings across a number of commercial properties by making investments in REITs. Compared to direct real estate investments, REITs offer investors greater liquidity because they are traded on the stock market. Furthermore, qualified professionals handle the leasing, management, acquisition, and selection of properties for the REITs’ holdings.
REITs also provide investors with a steady income stream through dividends along with the potential for capital appreciation when the value of the underlying properties rise. However, It’s crucial to remember that REITs are subject to market fluctuations and may not always perform in line with the broader real estate market.
CHOOSING BETWEEN DIRECT INVESTMENT AND REITs
The decision between direct investment and REITs would depend on various factors, including spending power, ability to identify properties, risk tolerance, and investment goals.
|Factors to Consider||Direct Investment in Commercial Property||REITs|
|Investment Size||Higher capital pool required||Lower Capital Requirement|
|Liquidity||Illiquid, may take months to sell||Generally Liquid, traded on stock exchanges|
|Control and Flexibility||Full control over property management||Passive investment, no direct control|
|Property Selection||Personalized property selection||Diversified portfolio of Grade-A assets|
|Income Flow||Rental income and profits from associated businesses||Regular income flow, dividend payments|
|Appreciation Potential||Potential for capital appreciation||Capital appreciation subject to market fluctuations|
|Professional Management||Requires self-management or hiring professionals||Professionally managed by the REITs|
|Taxation||Tax advantages may be available||Income and dividend payments are taxed|
|Market Fluctuations||Returns subject to individual property performances||Performance subject to market fluctuations|
The real estate market is predicted to increase from USD 1.72 billion (about Rs. 12,000 crore) in 2019 to USD 9.30 billion (about Rs. 65,000 crore) in 2040, according to the India Brand Equity Foundation (IBEF). In the first nine months of FY 2022, transactions involving over 1,700 acres of land were completed in eight of the nation’s largest cities. The real estate sector contributed approximately 7% in FY2019 and is expected to rise to 13% during FY2025.
Commercial real estate in India is undergoing a major transformation and one of the innovative developments leading the way is commercial real estate structured debts. With an approachable entry point of just Rs. 10 lakhs, This commercial real estate investment route offers the potential for a remarkable internal rate of return (IRR) at 17%.
For real estate investors with a limited budget, REIT investing can be an ideal option. Additionally, you won’t have to worry about property management when you purchase unit assets through an investment trust. However, unlike with physical real estate, revenue generation through REITs is vulnerable to market risk.
Therefore, you might think about making a direct real estate investment if you’re prepared to commit to it for the long run. However, if liquidity is a crucial factor for you, investment in REIT makes more sense. It is because shares can be traded anytime within trading hours.
Assetmonk, a well-known alternative investment platform with headquarters in India, presents a special chance for investors to participate in fixed-income investments via structured debt related to commercial real estate. The Signature Series B is one of their best-known investment products; it’s a fixed-income instrument that specializes in real estate structured debt. With a 17% guaranteed Internal Rate of Return (IRR), this product currently offers investors an alluring chance to earn attractive returns. Additionally, investors may be able to save up to Rs. 50,000 in taxes.
This opportunity is made even more appealing by its accessibility—anyone can begin investing in this product with as little as Rs. 10 lakhs. Whether you are a seasoned investor or new to the world of alternative investments, Assetmonk offers an enticing avenue to diversify your portfolio, earn attractive fixed-income returns, and capitalize on the potential tax benefits.