India’s commercial office real estate asset class has been drawing considerable attention from NRI investors. It provides an excellent opportunity to maximise RoI (return on investment) and generate fixed income in the form of rentals.
Rental returns in commercial properties are much higher than in the residential asset class, and are currently in the range of 6-10 per cent. And with capital appreciation factored in, they increases to 16-20 per cent.
Gulf-based NRIs have a special liking for this category. As per Anarock data from its GCC operations, commercial properties accounted for more than 25 per cent of the firm’s total real estate sales in the region over first two quarters of 2020 financial year. Grade A office supply — the gold standard for commercial property in India — is expected to rise by 13 per cent in 2019 as against 2018, reaching nearly 43 million square feet by the end of the year.
Absorption is expected to grow by 11 per cent year-on-year in 2019 against the previous year to touch approximately 37 million square feet.
Not surprisingly, institutional private equity players love Indian commercial real estate for its generous RoI potential. In fact, the commercial office space saw private equity inflows of more than $10 billion between 2015 until the third quarter of this year.
Some of India’s key investment hubs for commercial property are Bengaluru, Mumbai, Chennai, Pune, Hyderabad, and Delhi-NCR. In Delhi-NCR, Gurugram offers a wide bouquet of investment opportunities for NRI investors. Because of Its proximity to Delhi, Gurugram’s many office projects are seeing very good absorption. Some developers also provide additional offers for NRIs.
Soft rupee another catalyst
Most countries are witnessing declining bank interest rates, and most developed nations are seeing negative returns. In comparison, India has steep interest rates, which the RBI will temper once inflation is in control. This will fuel demand for commercial properties even further, resulting in capital appreciation and a perfect exit point for investors.
For NRIs, investment in Indian commercial properties is optimal right now, thanks to affordable prices. In the mid-to-long term, increasing demand will lead to a rise in capital values.
Moreover, the rupee’s depreciation over the last three quarters works in their favour. As of November, the dirham stands at Rs19.55. This increases affordability and boosts the profitability of well-chosen office space plays even more.
Shajai Jacob is CEO — GCC, Anarock Property Consultants.