Real Estate: Residential vs Commercial Property – Where to invest for best rental income in 2022? Expert suggests this
India’s real estate sector is recovering and recovering from the challenges of the Covid-19 pandemic, is positive and on track for a solid recovery. Despite a rollercoaster ride in 2021 and the third but milder wave of the Omicron virus, both the residential and commercial real estate sectors in key cities like Pune are optimistic about sustained growth in the near future. However, the recurring question of where to invest – residential or commercial – remains in the conscience of investors. dr Atul Goel, MD, Goel Ganga Group & President (Elect.), NAREDCO Pune, shares his knowledge on the aspects affecting return on investment (ROI) in both categories:
Investments in residential real estate in 2022
“There is no doubt that investing in residential property in general has a lower price and many people are thinking of investing in flats, apartments and residential property to generate sustainable rental income. Although investment may have taken a back seat in the past two years due to the coronavirus challenges, the residential sector in Pune remains a hot favorite of investors as the sector recovers from the challenges,” said Dr. Atul Goel.
“Residential investment in 2022 will coincide with the recovery cycle and as offices/commercials have started to call the workforce back to work, there will be a simultaneous recovery in the rental market,” he added.
“Residential investment close to major business centers, student housing, PGs and affordable housing continue to be in high demand. A robust investment trend in the post-pandemic scenario will be an increasing affinity of real estate investors to Tier II and Tier III cities. Real estate prices have not increased in the last two years, housing could in the second half (H2) of the year experience a price increase in 2022. Housing could see price increases with a growing Indian economy, which is expected to grow 8-9 percent in the next fiscal year,” he said.
“If the investor’s investment horizon is not too big, then it is better to invest in a residential property in Pune for sustainable and gradually increasing rental income in 2022,” he added.
Investments in commercial real estate in 2022
“The onslaught of the coronavirus hit commercial establishments hard and offices, workrooms and factories had to remain closed for a long time. However, in the open scenario, the restrictions are lifted and the workforce is back in the offices. In 2022, the commercial real estate sector is seeing significant demand as commercial expansions, which have been halted for the past two years, will materialize in 2022. In general, the return on investment (ROI) from commercial investments remains far better and more sustainable than residential. Long-term leases and contracts ensure a regular flow of income for real estate investors,” he said.
“According to the latest industry reports, office space absorption remained at 12 million square feet between July and September 2021, up 168 percent year-on-year. Major markets such as Pune and nearby areas, Noida, Delhi, Mumbai, Hyderabad and Chennai continue to attract commercial investors as they see a bright prospect of earning potential from their rental income. In 2022, commercial real estate investments will focus on offices, co-working Spaces and affordable businesses are concentrated. A growing trend in commercial real estate is that instead of owning an entire property, with this concept the investor invests in part of the property and enjoys attractive returns. This fractional ownership trend will remain lively in 2022,” he added.
“As a rule of thumb, if the investor has a long investment horizon and is aiming for a long-term to very long-term investment horizon, commercial real estate is the option of choice. Factors such as location, physical availability and social infrastructure and connectivity need to be considered when investing in a commercial property. In conclusion, 2022 will be a year of recovery and sustained real estate growth in Pune and other cities. If the investor has a limited budget, residential real estate is the option to opt for a good rental yield. However, if the time horizon is long-term, commercial real estate investment can be considered,” he concluded.
(Disclaimer: The views/suggestions/advice expressed herein are those of investment professionals only. Zee Business encourages its readers to consult with their investment advisors before making any financial decisions.)