Residential Vs Commercial: Where To Invest To Get Best Rental Income?

Recovering from the challenges posed by the Coronavirus pandemic, the real estate sector of India is resurgent, positive and on the path to a solid recovery. Despite a roller coaster ride in 2021 and the third but milder wave of the Omicron virus, both residential and commercial real estate sectors in cities like Pune are optimistic of sustainable growth in the near future.

However, the ever-persistent question of where to invest-residential or commercial remains in the conscience of the investors. Here is a letdown on the aspects affecting Return on Investment (ROI) in both categories.

Residential Real Estate Investment in 2022

There is no doubt that the residential real estate investment generally comes with a lower price tag and a lot of people think of investing in flats, apartments and residential properties for a sustained rental income. Although the investment might have taken a backseat in the past two years due to the Coronavirus challenges, the residential sector in Pune remains a hot favourite of investors as the sector recuperates from the challenges.

The residential real estate investment in 2022 will be coterminous with the recovery cycle and as offices/commercial establishments have started calling the workforce back to work, there will be a simultaneous recovery in the rental market.

Residential investments near large business hubs, students' accommodations, PGs and affordable flats will remain in high demand. A robust investment trend in the post-pandemic scenario will be an increased affinity of realty investors towards the Tier II and Tier III cities. As the real estate prices have not risen for the last two years, the residential space might witness a price surge in the second half (H2) of 2022. The residential space might see a price upsurge with a growing Indian economy which is slated to grow at 8-9 percent in the next financial year.

If the investment horizon of the investor is not too large, it is better to invest in a residential property in Pune, for a sustained and progressively increasing rental income in 2022.

Commercial Real Estate Investment in 2022

The onslaught of the Coronavirus came upon heavily on the commercial establishments and the offices, workspaces and factories were forced to remain closed for a long time. However, in the opened up scenario, the restrictions are lifting and the workforce is back to offices.

In 2022, the commercial real estate sector is looking at a substantial demand as the commercial expansions, which were halted for the last two years, are bound to materialize in 2022. In general, the rental Return on investment (ROI) potential of commercial investment remains far better and more sustainable than residential space. Long term leases and contracts ensure a regular flow of income for the realty investors.

According to recent industry reports, the office space absorptions between July-Sept quarter 2021 remained at 12 million sq ft, a 168 percent rise from the previous year. Major markets such as Pune and nearby areas, Noida, Delhi, Mumbai, Hyderabad and Chennai continue to attract commercial investors as they are seeing a bright prospect in their rental income yielding potential.

In 2022, commercial real estate investment will be concentrated in offices, co-working spaces, and affordable shops. A growing trend in commercial real estate is fractional ownership. In this concept, instead of owning an entire property, the investor invests in a part of the property and enjoys handsome returns. This trend of fractional ownership will remain buoyant in 2022.

As a thumb rule, If the investment horizon of the investor is large and he/she is looking at a long to very long term investment horizon, commercial real estate is the option to choose. However, factors such as location, availability of physical and social infrastructure and connectivity must be kept in mind while investing in a commercial asset.

Conclusively, the year 2022 will be a year of recovery and sustainable real estate growth in Pune and other cities. If the investor has a limited budget, residential realty is the option to choose for a good rental return. However, if the time horizon is long term, commercial real estate investment can be considered.

Authored by Dr. Atul Goel, MD, Goel Ganga Group & President (Elect.), NAREDCO Pune