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Commercial Property Investment make money but residential segment still struggle.

The residential property sector is a big mess, as demand and supply is in large quantity. The sector is grapple with various issues, namely liquidity deficit in the aftermath of IL&FS payment default, high cost of capital, below-par sales and a string of stalled projects.

The residential property market  is facing serious struggle at the moment. Though sales have started picking up, it will take some time for serious price appreciation to start happening

Recovery in the residential segment is at least 12-18 months away, given the recent liquidity crisis and slower-than-expected sales recovery. New Launches have dropped drastically with many under-construction projects getting stalled due to funding issues

You can still have option as commercial real estate promises exciting good returns

In the current market, commercial real estate -; need especially Grade A office properties – is the best-performing real estate asset class. Thanks to the government ‘s of India initiatives such as Make in India and the start-up culture in the country, demand and absorption for well-located office properties has been exceptionally high with rental yield going as high as 10-11% in certain markets.

Investors who find ticket sizes of such properties too vertical can await the imminent announcement of India’s first REIT (real estate investment trust) listings. These will operate like mutual funds for real estate and allow investors with budgets as low as Rs 2 lakh to invest in this thriving segment of real estate

Will 2019 turn out to be any bit smooth, then?

Demand in office, shop and retail sectors will continue to in supplies, leading to lower vacancies and higher rental yields in 2019-20. Also, private equity participation is quite high in commercial assets, which lends more shine to this space.

The liquidity crisis that roiled NBFCs (non-banking finance companies) and HFCs (housing finance companies) almost broke the back of the sector, as accessing capital from lenders got a lot tougher

High GST rates have change mind of several homebuyers from buying under-construction properties in 2018, their preference is largely tilting towards ready properties only, which is exempt. The government is discussing reducing the 12 per cent GST rate on housing to boost demand in 2019. If a lower GST is approved, it will be a major boost for the residential segment.

From a policy perspective, the government may have shown a clear intent to remove bottlenecks, with a clutch of reforms such as GST and IBC (Insolvency and Bankruptcy Code). RERA (Real Estate Regulation Authority) is also a case in point, but its implementation leaves a lot to be desired and remains patchy so far.

Elevated cost of capital to finance projects is another pain the neck for builders and developers. In absence of bank finance, developers are turning to PE (private equity) funding and other non-formal ways to bankroll land purchases, ultimately pushing up cost of capital drastically.

With pan-India property sales in shadow of its former self, Gurgaon &  Delhi NCR have a fresh air. In the commercial space,  tops the pack that is likely to see a growth in 2019 from both demand and supply points of view, with Bengaluru and Hyderabad following closely.

“For the past several quarters, sales have exceeded launches in the top seven cities and unsold inventory has come down to nearly 5,00,000 units as of H1 of 2018. Unsold inventory remains the highest in the NCR region.

“Bengaluru and Hyderabad markets are expected to continue to do well with consistent sales momentum.

So, it’s advantage commercial realty. If you happen to be a real estate investor, you might ask, what’s in it for me?

Office and retail sectors are making all the buzz. “For an investor with a minimum 3-5 years of horizon, one can look at a few micro markets for residential real estate investment, as the shift takes place from unorganized to organized segments. Office and retail sectors can be considered good investment options for yields to the tune of 10-12 per cent.

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