The economic slowdown has crimped launch of new real estate projects across the country, which has affected both end users and investors, as the upper middle class considers a second home as an asset for wealth creation that can generate rental yield and capital appreciation.

However, returns from the real estate market ? both residential and commercial properties ? across the country are seeing a correction due to exceptionally high appreciation seen from 2005 until 2008 and, then again, in a few markets from early 2011. In such a scenario, an investment ? be it short term or even long term ? does create a few anxieties for the investor.

Across most of the top-10 metros, returns on rentals have been in the range of 3% per annum in residential and 6% plus for commercial real estate. However, for high-value properties, even 8-10% yields are possible (say for super HNI segment investing in prime commercial real estate). For investment in higher rental yields, investors must keep the following points in mind.

Developer: The track record of the developer, be it in case of commercial (ability to lease) or residential, is a primary consideration.

Project location: It is a critical factor for one to consider. Demand supply balance in that area needs to be studied well. There are always pockets and clusters where some key business and trades of that particular city are thriving and tend to continue to keep their base. Past appreciation and future capital appreciation in good established areas, old parts of the city for both residential and commercial, are a safer place to invest, though the value of these properties will be higher.

End use: Captive end users and social infrastructure (school, shopping, colleges, clinics/hospitals) around the area for long-term sustenance of both residential rentals and capital appreciation. For commercial real estate, one needs to see if there are other business hubs like alternative business districts, sub-urban business district around that area so that the spill-over and captive requirement can be met with a property located close to such hubs. These typically tend to provide more economical expansion and are prone to inbound relocations.

For a commercial investment, a bank branch, ground floor high-end retail shops, jewellers, etc., are premium properties, so one should look out for such kind of neighbouring properties. These bring a higher premium in both rentals and capital appreciation of neighbouring properties. In case of income yielding commercial assets, the lease term, lock-in and the pedigree of tenant are important. However, one would recommend that if you are a first-time investor, look for a residential property as an investment. Only regular investors should have a fair mix and increasing proportion of commercial properties for looking at higher yield/returns over a period of time.

Sachin Khandelwal

* The writer is chief executive officer, Magma Housing Finance