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Given the challenges, investing in real estate can be an arduous task. Investors must carefully examine their risk appetite, conduct due diligence on the kind of property they should purchase, decide between investing in commercial and residential properties, and allocate capital.
Understanding Commercial Real Estate Investing
Commercial real estate (CRE) encompasses essential market segments comprising offices and industrial properties. It can be apartments, daycare centers, condominiums, movie theaters, parking spaces, industrial floors, warehouses, and retail spaces occupied by brands like Big Bazaar and Croma.
Any property used explicitly for business purposes can be termed CRE. Multi-use spaces can also be used as commercial spaces and residential areas.
Understanding Residential Real Estate Investing
Residential real estate (RRE) includes typically rented housing, not owner-occupied. That might sound overly simplified, but it is the same. Any property created solely for living is termed residential real estate (RRE). RRE can also be part of multi-use spaces.
The significant difference between RRE and CRE lies in how they are rented or leased for commercial or residential purposes. Legal aspects of real estate investments differ, while the underlying principle remains the same.
Residential vs. Commercial Property Growth in India
Two real estate investment options are available for purchase: commercial and residential. Depending on your finances and goals, both options may be valid.
Sure, you can invest in both types of real estate. However, renting out a residential home is much more work than owning a commercial property, considering the maintenance and time spent communicating with tenants.
Let us look at the growth prospects in residential and commercial real estate properties.
Residential Real Estate Growth in India
- RRE segment recorded the highest residential sales in Q1 2024, with a notable 20% increase compared to the same period in 2023.[1]
- RRE sold 74,486 units, with 79,110 launches of new units, surpassing all previous Q1 numbers with a 5% year-over-year growth.[1]
- The affordable segment of RRE, with apartments priced below INR 50 lakh, experienced a decline in its share of sales, dropping from 27% to 15% in Q1 2024.[1]
- The quarterly sales in RRE’s luxury segment, with apartments priced above INR 3 cr, increased from 5% in Q1 2022 to 11% in Q1 2024.[1]
- The top seven cities – Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, and Pune – remain prominent and hold the largest share of RRE.[1]
- Ultra-rich people have invested 32% of their investment portfolio in the residential sector—approximately 12% plan to purchase a new home in 2024.[2]
- A recently published survey in their quarterly report, Real Estate Sentiment Index, showed a jump of 73% of the respondents expecting residential sales to increase in the next six months, with the continued momentum of growth in new residential launches prevailing.[4]
Commercial Real Estate Growth in India
- The India CRE market size is estimated to reach 40.71 billion by 2024. The sector is poised to reach 106.05 billion by 2029 at a CAGR of 21.10% from 2024 to 2029.[3]
- The top seven Indian cities—Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, and Pune—share the big pie as CRE investors. Delhi-NCR alone holds a 26% share in India’s leased retail spaces.[1]
- CRE sub-segments like data centers, healthcare, hospitality, co-living, and co-working spaces can drive private equity investments.[1]
Comparison of Commercial and Residential Real Estate
As with every investment avenue, the decisive factors for gauging the effectiveness of the investment in real estate are determined by investors’ goals and the evaluation of risks associated with commercial and residential real estate.
To understand the prospects of investing in real estate, let’s examine the significant differences between CRE and RRE to see which would better suit your needs.
In terms of Commercial Real Estate
In terms of Residential Real Estate
Commercial vs. Residential: What Should You Choose?
Does an investment in commercial real estate make more sense? However, to assess these investments’ benefits, one must understand the investment. The answer to this question doesn’t necessarily have to be yes or no, but it is worth exploring both options.
It can work well if you are forthright about your goal—deciding on the amount you need to invest in returns from the investment you desire within a specific timeline to earn profits. The thumb rule is that real estate assets generate good returns only when held for an extended period: two years or more.
For investors, RRE is more accessible than CRE; the former offers better choices for portfolio customization. You should consider the two crucial factors in real estate investment: risk and goals.
Potential risks can result in possible losses. The returns justify the investment only if a property gets enough tenants through the investment period. Investigate all available options before investing in commercial or residential real estate sectors.
Sources
JLL [1]
Frequently Asked Questions (FAQs)
What is the difference between commercial and residential properties?
The significant difference between RRE and CRE is whether the property is rented or leased. CRE properties comprise offices and industrial properties, whereas any property created solely for living is residential real estate.
Which is better: commercial or residential?
Commercial or residential investments have pros and cons (as mentioned above). Investors should investigate their available options before investing in real estate.
Which is riskier: commercial or residential?
Investment in the real estate sector may be risky due to volatility. As the economy fluctuates, so do real estate’s commercial and residential sectors. The availability of tenants to rent the property is crucial in both investments. Learn more about the ways to minimize risk in a real estate investment.
