Real estate has long been regarded as a trustworthy investment because it enables people to amass wealth and generate passive income. Commercial and residential real estate investing are the two primary market segments.
What is Commercial Property?
In India, properties utilized for commercial purposes are commercial property. It includes workplaces, shops, hotels, warehouses, and other commercial and industrial structures. In India, businesses frequently lease or rent commercial properties, generating income from rental payments. Location, rental yield, infrastructure development, and general market conditions are just a few examples of the variables that affect the value of commercial real estate.
What is Residential Property?
In India, residential property refers to properties used mainly as residences. It covers single-family homes, condominiums, townhomes, and gated communities. Individuals or families purchase residential properties in India for their use to rent. Location, amenities, connectivity, demand-supply dynamics, and property condition are just a few of the elements that affect residential real estate value.
Rental Income for Commercial vs. Residential Property
When contemplating investing in real estate, rental income is a crucial factor. Property buyers are frequently perplexed over whether investing in a residential or commercial property would yield a higher return on their money. Senior real estate expert Arvind Nandan notes that the general asset selection principles, such as the property’s location, quality of construction, age, and usage, are the same whether the property is residential or commercial. “Remember a few things when you consider investing in terms of the expected rental income for residential versus commercial property. Commercial properties have longer lease terms than residential properties, which typically require annual leases. Due to the frequent tenant turnover, vacancy risks are higher in residential properties. Property buyers should, therefore, consider the qualitative aspects of these two segments before deciding between leasing commercial or residential property, the expert advises.
Commercial vs. Residential Properties: Rewards vs. Risk
Tax Advantages: Rental income from commercial and residential properties is subject to taxation. However, under Sections 24 and 80C of the Income-Tax Act, real estate acquired with a home loan is eligible for tax breaks.
Because residential properties experience frequent tenant turnover, higher maintenance and upkeep expenses, and lower returns, risk and volatility may be higher in residential properties. Commercial real estate provides reliable, long-term renters with steady income streams.
Both entering and leaving an investment aren’t with illiquid assets. A portfolio of commercial properties would be easier to create with Real Estate Investment Trust (REIT) regulations. Building a portfolio of commercial properties would be easier under Real Estate Investment Trust (REIT) regulations than acquiring residential ones. Additionally, because there is a much higher demand than supply for Grade A pre-leased assets, they are more liquid than residential properties.
Before deciding whether to invest in residential or commercial property, it is crucial to factor in the location, investment amount, and tenure in addition to the above factors.
Investment in Residential Property: Pros and Cons
| Benefits | Drawbacks |
| Cheaper Entry Fee. | Low rental income and yields. |
| There’s no minimum size available. | Investment in furnishings to make it affordable to rent |
| Loan applications are widely available | The lease will be of 36 months. |
| Leasing procedures are typically much quicker. | |
| As compared to commercial properties, returns last for a short period. |
Investment in Commercial Properties: Pros and Cons
| Pros | Cons |
| Higher rental yield returns | Commercial property capital values typically exhibit longer-term stability. |
| Possible longer-term leases of up to nine years | For economic viability, the property might need to meet a minimum size. |
| Leasing is available in either a bare or warm shell. | Selling is challenging due to the absence of buyers as there could be. |
| Commercial values are not very volatile. |