Important things to consider before investing in commercial real estate

Updated: Mar 02, 2021 1:42 PM

Commercial real estate continues to be a lucrative investment category, owing to its performance in terms of capital gains.

Investments in commercial real estate in Delhi NCR with regard to new office space buying are rising by around 30% annually, especially in Noida.

Amidst the current turbulent situation, commercial real estate continues to be a lucrative investment category, owing to its performance in terms of capital gains. It continues to be a valuable source of stable rental revenues.

The past decade has seen commercial real estate grow exponentially —Estimates highlighted by several reliable media sources have indicated that it has attracted equity investments to the tune of USD 15. 4 billion since 2011. To add to this several initiatives introduced by the government such as RERA, Real Estate Investment Trust (REIT); Infrastructure Investment Trust (InvIT), etc. that increased transparency and hence consumer trust has helped boost investment especially in Grade A commercial spaces.

Further, due to a flurry of infrastructural developments, the National Capital Region (NCR) has accounted for the second-largest quantum of PE investments since 2011 (Knight Frank). This positive growth coupled with lucrative returns on investment has enhanced commercial real estate value for investors. Investing in Noida is currently a trend among investors due to the cost-effective yet Grade A properties that are being constructed. A PWC report highlights—Investments in commercial real estate in Delhi NCR with regard to new office space buying are rising by around 30% annually, especially in Noida.

In fact, Greater Noida West as a real-estate zone is currently seeing the highest density vertical development across Asia. In the last 3 years Greater Noida has seen a growth in population to 3 lakh and in the next 5 years we can expect a population increase to 10 lakh. A large part of this population includes young, aspirational workforce pool, which is great from a commercial real-estate perspective as it provides a “ready” employee base for potential corporates looking for space.

Another promising aspect of Greater Noida West is that it is not dependent on Noida connectivity at all. The Meerut Expressway connects this area to Delhi and other regions in the area, thus creating a huge potential for development. What makes this region even more lucrative is its connect to the Delhi-Mumbai Industrial Corridor (a dedicated freight corridor) opening up easy connectivity for trade and its proximity to the Jewar Airport.

Considering all the above positive points, investing in Greater Noida West will provide good return on investment, passive income and further growth potential. However, in spite of all these good points, customers must be careful and must do their ‘due diligence’ before investing.

Here is a list of points that one must consider when investing in commercial real estate:

# Location: Location is priority when it comes to investing in commercial real estate. A well-connected project = better accessibility + increased footfalls. Investor/customer must do a thorough check of all the liabilities and advantages that the location presents for them.

# Title: It is extremely important to know the “Name behind the project” and what they stand for. Most importantly the “Title” must be absolutely clear and transparent. One must with the help of a legal aide investigate to confirm that all available information with regard to the project/builder’s title, history, background, privileges, obligations, etc. is clear.

# Land Use: One must ensure that the builder is following the set guidelines in terms of “land use”. For a commercial set up, one is allowed to develop in the ratio of 30:70 (30% construction and 70% open space). For example: In case of Golden I, only 27.6% is constructed and the rest is open space to keep with the environmental-friendly norms and create a space that feels lively, open and free.

# Land Clearance/Authority Dues: Research and ensure that all payments with regard to the land have already been cleared by the builder/developer and all property documents are in place.

# Building Permits/NOCs/Approvals: The entire project map must be approved. Ensure that all authority permits/ clearances have been taken—building plan/ municipal authority approvals, water and electricity board authorizations, occupancy certificate, Fire Department NOC, clearances from the Aviation, Environment authorities, Pollution Board, etc.

Especially with regard to RERA registration, please note that a builder/project will take 1 to 3 months to get a RERA registration provided that all NOC’s as mentioned above has been submitted and cleared. In case, a builder/developer has not received the RERA registration even after a quarter, then one must research further before investing.

# Clarify Approvals Across all Spaces Within the Project: Ensure that any space you intend to invest in is approved. A lot of times in commercial spaces, builders sell Areas/KIOSK spaces that are mostly used for sale purposes are illegal and can cause a lot of problem. So, best be aware before making such a purchase. Even these spaces must be registered and approved in the MAP.

# Possession Date: As mentioned in RERA, once you have invested always keep a constant check on progress of construction. Is it headed towards completion as per the set and promised deadline? Please Note: RERA extends delivery deadline only in case of “Force Majeure” and even in this case when it is an unforeseeable circumstance, maximum only a year of delay is allowed.

# Technical Due Diligence: An essential part of investing in a commercial project, one must ensure that the property is thoroughly inspected to ensure that the structural quality of the project is on-point—generator, lifts, HVAC air conditioning systems, plumbing, efficiency means carpet area / leasable area, etc. You may have to get a specialized firm to do this.

(By Sudhanshu Rai, Director, Ocean Infraheights)

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