Karan Mehta is a next-gen businessman from Ghatkopar, who believes in the power of the internet. As his digital and social media business flourishes, Karan finds himself with surplus cash. He decides to invest his money in real estate. Through his research, he discovers that commercial properties give better returns than residential properties. Though the returns are convincing enough for him to want to invest, he is also concerned about making a bad investment because of his lack of knowledge about the real estate market in Mumbai. He does not want to lose his hard earned money.
He reaches out to his friend who also happens to be a Real Estate Advisor to give him a rundown on the commercial property investment market in Mumbai. This is what he learns:
There are many types of commercial properties including warehouses, shopping complexes and malls, office complexes and industrial buildings.
In Mumbai, which is a central hub of many industries, investment in the commercial properties has higher returns in the longer run. Depending on the areas in which the property is situated, the annual return of the commercial property ranges from 6% to 7%, which is higher than residential property. Warehouse investments give up to 9% returns.
However, investment in the commercial property is also high. In Mumbai, an investor must have a minimum of INR 5 crores to be able to invest in a prime commercial property in a prime location.
A prime property is one that is located in a central location, accessible to all modes of public transportation and has a well-developed social infrastructure around it. When deciding on a prime property ask yourself the following questions:
1. Is the property I am going to buy easily accessible to at least two modes of transportation in Mumbai, such as locals, metros, BEST?
2. Is the office property is close to major commercial hubs in Mumbai?
3.Does the location have well developed social infrastructure like malls, theatres, restaurants etc.?
4. What is the growth of commercial space transactions taking place at this location?
5.Does the building have a modern look and amenities?
6. What is the demand-supply gap?
Properties that have positive answers to most of the above questions are all prime properties. The investment in the a prime property is always higher, and it gives you much higher returns.
Let’s take a look at some prime properties in Mumbai, starting at the base of the pyramid:
1.The peripheral business districts of Andheri–Jogeshwari, Malad–Goregaon, Powai–LBS Marg and Thane-Navi Mumbai.
2. The Secondary Business District (SBD) which includes the micro-markets of Worli, Lower Parel, Prabhadevi, Bandra Kurla Complex (BKC) and Kalina.
The Central Business District (CBD) which includes the micro-markets of Nariman Point, Fort, Ballard Estate, Cuffe Parade and Churchgate used to be considered prime commercial property but this is not the case anymore.
While investment in a micro-market is cost-efficient, these properties take longer to attract tenants. This affects the income negatively and may even result in loss of the income. On the other hand, offices located near local stations or highways are easy for employees to travel to, considering that employee retention ranks very high on employers’ list of priorities today.
Having a commercial prime property increases the reputation of your firm that in turn increases the visibility of your firm to your clients, partners and other businesses. The capital appreciation of a prime office property reflects very favourably on a company’s balance sheet. Owning a prime property is better for business potential and returns on investment.
To get best returns on the investment, you must have provision for the current status of the market. Research various factors such as the employment rate, accessibility to public transportation, the social infrastructure, etc. in that area.
Whether you are buying the property for your use, or as an investment, the key to success is consulting the right real estate partner. Data and market analysis always wins over gut instinct. Knowledge of the local area, as well as current market conditions, are, of course, a prerequisite. But there are many other questions to ask your broker. For example, what are the brokerage charges? Are there any other fees payable and who pays them? What are the commission charges, transaction fees, E&O premiums and desk charges? Ask them to give you the names and phone numbers of their repeat investors as well as some first-time investors so you can do your due diligence. Whoever you work with should take the time to understand your requirements, your objectives for purchase and your expectations on returns.
Documentation plays a critical role in any investment transaction. Here are the documents you will need when investing in a commercial property:
1. Sale Deed: Also known as a Draft agreement, this is a mandatory document that acts as a solid proof of sale and transfer of ownership from the seller to buyer. A buyer must ensure that the property has a clear title and only then execute the Sale Deed. Also, the buyer should also confirm the property for encumbrance charges.
2. Khata Certificate: It is an account of the person owning that property. It is compulsory for the registration as well as the transfer of the property.
3. Mother Deed: Also known as a parent document, this is documental evidence of all the ownership from the establishment of the property. A Mother Deed includes the change in ownership of the property, be it through sale, partition, gift or inheritance. It is important as it establishes your ownership on the property which is must at the time of its sale.
4. Building Approval Plan: In Mumbai, the Brihanmumbai Municipal Corporation (BMC) or Mumbai Metropolitan Region Development Authority (MMRDA) approves all building plans. Without this, any construction is illegal.
5. Encumbrance Certificate from date of purchase till date.
6. RTC (Records of Rights and Tenancy Corps) or 7/12 extract.
7. Receipts of Tax payments.
8. Occupancy Certificate (for a constructed property): When a builder applies for this Certificate, an inspection is carried out by the authorities to ensure that the construction meets specified norms. This certificate is obtained after the completion of the construction.
For people like Karan, buying a commercial property in Mumbai doesn’t have to be worrisome. As with all investments, there are some risks. However, with the right advice, his investment will give him the right returns.