Investment in Residential property vs Commercial property? What is better?

The investment in either residential property or else residential property yields better results. However, the rentals for the commercial property are higher than that of a residential property. The residential property prices on a per square feet basis are lower while that of the commercial property, the per square feet rate is double. The residential property is larger and has got adequate space and with attached single or multiple bathrooms. At the same time, the commercial properties do not have a bathroom most of the time. Residential properties also yield better returns on rentals. The loans available for the residential property are for 30 years, depending on the borrower’s age. The purchase of residential property by taking home loans is exempted for the tax benefit of Rs.2.0 lakh beyond the tax slab exemption of Rs.2.50 lakh. The residential property value may sometimes depreciate in the case of the age-old building. But the property’s overall value increases as and how time passes; thus, the rate of the locality increases, and thus the investor gets a better deal for the resale property. The loans are easily available for the residential property, and thus the borrower can buy the property by availing the loans.

Commercial properties have better market value than residential property. The commercial property investment includes the warehouse, shops, showroom, office spaces & industrial warehouse. These spaces yield much higher rentals and also better returns on investments. In case of recession or slack market conditions, the demand for these spaces may decline as well. But the overall demand is high for all these kinds of commercial properties. The commercial spaces are more costly to invest and also, the buyer gets smaller space in return or else may have to invest heavily to get larger space. The appreciation of the property is less as the value of the property is very high. The demand is volatile and depends upon the market conditions. The spaces available for the shops & showrooms are very low thus the buyer has very limited scope. Some commercial spaces in the interior may not fetch better value than the residential property, as the demand for prime spaces or else facing the main roads is only high. The commercial property electricity rate is far higher than the residential consumer; thus, the overall operational cost of maintaining the property is high.

Benefits of the Commercial Property

· Commercial leasing is for a longer duration, and the tenants and the owners may sign a large contract for the lease agreement, and if the business sustains, the growth of the rentals is also high for the commercial property.

· Though the investment is costly, the buyer may yield higher returns on investment through rentals.

· Bank loans are easily available for commercial property as the bank can easily seal the commercial property and take it into their possession in default.

· The interest rates for the commercial loans are attractive and are available at interest rates of 9-11% per annum.

Drawbacks of the Commercial Property

· The operational cost of the property is high as the water bill & electricity bill is charged at a commercial rate which is very much higher than residential ones.

· The rates of the property while purchasing is far higher as compared to the residential property.

· The area of the commercial property is very small, especially for the shops, and lacks basic amenities like a bathroom in most shops.

· The commercial property towards the main road facing only fetches high value while the properties located slightly in interior fetches low customer base and lower returns on investments.

Benefits of Residential Property

· The area derived from the residential property is high and has all basic amenities like proper bathrooms, water supply, and balcony, etc

· The residential property is easy and convenient to buy and is available in plenty; thus, buyers are left with plenty of options to buy.

· The residential property located in an isolated location also fetches better value as the calm & quiet places are preferred by the home buyers.

· Loans are available at lower interest rates of 6-9% per annum. Thus the interest rates charged are lower.

Drawbacks of the Commercial Property

· The residential property rental yield is lower as compared to commercial ones.

· The tenants have plenty of options to choose from; thus, the bargaining capacity of the tenant increases.

· The rent agreement is made for a shorter duration, and thus the tenants may not sometimes stay for a long duration.

· For the age-old building, the value may depreciate as the new buyer does not wish to stay in an old and dilapidated building.

Commercial investment is a better investment than residential property as gaining long-term rental yield is possible for the commercial property, and the appreciation is high. Also, loans are available from the bank easily for commercial property easily. And getting the tenant for commercial space is easy as they are available in scarce; thus, the tenant is left with fewer options to take the property on rent. Thus the owner’s negotiation capacity increases in the case of commercial property.