Residential vs Commercial Property: Which Should You Choose for Investment?

Residential and commercial properties have certain properties and demerits. Residential properties are used for personal purpose as well as long-term investment, while commercial properties are good for achieving high rental returns. However, they may be more expensive than the former. So, what would be the best for investing and generating high returns? Let us know the answer to this question in this article.

Good rental income: People who believe in investing in real estate always think of generating high returns from it. Commercial properties such as office buildings, warehouses, industrial units and retail spaces are great for making some rental money. Similarly, you can rent your residential property to earn some extra income. It has always been found that commercial properties are always good in terms of making some passive income rather than residential properties, especially during a recession. According to research, you can earn 1-2 percent of rental income through residential properties while commercial property provides you up to 5 percent of rental income. With the increasing development of residential units, the rental market is losing its charm which is reducing the annual profit.

When investing in commercial property it is advisable to examine all aspects such as current leasing environment, clearance, legality and distance from complementary industries. Whereas you should consider some important facts about the residential property that you want to get as its neighborhood, surroundings, and infrastructure and neighborhood property prices. These factors will help you generate a good rental income through investing in the real estate sector.

Risk Factor: Commercial and residential properties that are leased out, asking to tax the income of the property. The risk of investment is always higher in the case of residential properties as they are leased for shorter terms of lease and bring higher maintenance and maintenance costs. Whereas commercial properties provide continuous and long-term rental income. If a commercial property falls under Grade A, there is a possibility that it will generate more rental income than investment in residential properties. Commercial property always gives good rental income on investment unless it is in high demand where operating expenses are at a minimum.

It would be nice if you hire a professional property manager who can help you and help you manage everyday affairs and reduce expenses. However, it can cut down on income from your property. In addition, you will need a larger amount to pay in advance than residential property.

Development Scenario: According to reports, India's first Real Estate Investment Trust (REIT) will give better returns to property buyers and investors, while residential sector will be the first choice of the people. The market was believed to be sluggish, but after the introduction of the Real Estate (Regulation and Development) Act (RERA), and the Goods and Services Tax (GST), the market would again retain its position.

And there will be demand for commercial market after sector for investors. Before making any investment such as its location, size of investment and duration of investment, make sure you go through all aspects of the property.

Hidden facts about Real Estate (Regulation and Development) Act – RERA

The Real Estate (Regulation and Development) Act is fully implemented. The major implications of RERA are summarized below, for the understanding of a person who is not part of the real-estate sector.

Any project up to 500 square meters, and more than 8 units (flats / apartments / personal properties) that are under construction, will have to be registered under RERA.

This means that most, if not all, of the ongoing projects will be officially looked into under RERA.

Every project detail has to be registered. This includes project layout, planning, government approval, land title status, subcontractor of the project and completion schedule with RERA. It has to be presented to the consumer. Each phase of a project will be considered a stand-alone project and will require related permission.

In this way, RERA will be updated with all real estate activity which will help increase transparency and streamline the sector.

Under Section 9 of the Act, all agents and brokers have to register with RERA within three months of the implementation of the Act.

As a result, house buyers will only deal with agents and brokers who are qualified, verified and authorized.

The sale of any project will be on the basis of its original carpet area and not on the super built-up area.

Buyers will get a clear understanding and will be able to make an informed decision when purchasing a property.

Once a particular project is registered and sold, no further changes can be made without the buyer's consent.

This will eliminate the cost of fluctuations after the sale is completed. In addition, it will ensure that projects are delivered on time.

The developers will be liable to pay interest on the amount paid by the buyer if the project takes longer to complete than promised.

This law will ensure that projects are completed and delivered without any delay.

Separate accounts have to be maintained for different projects of the same developer. 70% of the client's money will be used to build related projects.

This will help in regulating the transaction. The customer's money will be used fairly and appropriately for the development of their homes. It will also assist in timely delivery of projects.

In case of any damage, the customer can contact the developer in writing within 5 years of being taken possession.

This will ensure the safety of the customer even after they are assigned to the project.

Under this Act, the Real Estate Appellate Tribunal is constituted. These tribunals will decide on disputes between buyers and developers within a time limit of 60 days.

This will speed up the resolution process.

For the developer who fails to follow the law, the maximum is 3 years without jail / fine.

Therefore, the law will have to be strictly followed for everyone in the industry, making it customer-friendly.