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HNIs now investing in commercial properties
Source: Vivek Shukla, The Economic Times Mar 19, 2010
If you imagine that commercial properties are only purchased by companies to expand their business prospects, think again! Now high net worth individuals (HNI) too invests in commercial properties. As recently as a few years ago, commercial property was an investment option for select individuals.

Apart from the issue of a large investment, it required a different mindset from the investment point of view as well. But, over the years, a large number of Indians have begun to earn huge salaries while many others are also making a lot of money through freelance jobs, which they are investing in commercial properties.

Unlike in the past, the New Age Indians are not confined to investing in residential properties. This trend is picking up fast. "If banks do not show reluctance to give loans to individuals in order to buy commercial properties, more and more HNI will come forward to buy commercial properties. It is now no secret that banks hardly show any positive attitude to sanction loans to individuals in order to buy commercial properties. This happens all over the world. That is why you can not blame only our banks," says Samir Jasuja, CMD of PropEquity.

An official of PNB Housing Finance Ltd also admitted that while banks happily give loans for residential properties, they are not that forthcoming when it comes to loans for the purchase of commercial properties. Reason? He said that compared to residential properties, the rate of default is very high in this segment. That is precisely the reason banks avoid disbursing loans to individuals in buying commercial properties.

"As far as Ansal API is concerned, we have got bookings from a sizable number of such individuals (HNI) in our malls (Ansal Plaza in various locations), as also in small to medium office spaces in our commercial projects in Delhi NCR, Punjab, Lucknow, Kundli (near Sonipat in Haryana), among other projects," says the company's official spokesman.

Anu Gupta, director of Century 21 India, says that HNIs should make investments in commercial properties as these investments could maximize their return. The reason being, while they could go for bank loans up to 75-80 % for such investments, the repayment of such loans could be set off against the rental incomes from such commercial properties. Thus, by investing a portion of the total price (say 25%), an investor can acquire a high-value asset, which will not only give maximum return (thanks to the set off provision in IT against rentals), but could see a significant appreciation over a period as the retail/commercial industry grows.

Giving his own example as to how he is earning less because he has invested in residential property while his friend is earning far more than him for investing in commercial property, a Delhibased financial professional, Narinder Gambhir, says that both he and his friend invested in residential and commercial properties in 2004 in East Delhi. Both invested close to Rs 30 lakh each.

"While I am getting a rent of Rs 15,000 per month, my friend is earning Rs 25,000 from his property. This is a huge difference," Gambhir rues. Discussing about the factors which are crucial for HNI to look before buy commercial properties, a realty expert says that they should not invest where there is a deluge of supply.

In that case, the investment would not fetch good returns. HNI also invest in commercial property, as they are not restricted to a dingy market area. Today, swanky malls enable an individual to look at commercial property as a viable investment option. Moreover, the emergence of semi-commercial property in residential locations has made the investment financially viable. RK Arora, CMD of Supertech group, says that there is nothing wrong if you invest in commercial property, but one must invest after taking all the pros and cons into consideration.

"I feel that if you invest in some commercial space in NCR, then you have to wait for a long period before earning anything as there is a massive supply of such commercial property in NCR, unlike in Delhi. If you can invest in Delhi, then it is great." However, Alimuddin Rafi Ahmed, CMD of ILD realty group, feels that as our economy is improving after tiding over a really tough time during the market slum of 2008-09, corporates are looking for commercial spaces on lease, hence it is a perfect time to invest in commercial properties.

"This is just the right time to invest as the property is available at rockbottom prices. The crash in property prices led to downward revision of prices by developers. The reduction was to the tune of 30% or so. Hope things go better in the times to come and everyone benefits from the property," Ahmed concludes.

Tag: Real Estate India, India Properties, Commercial Properties
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