At a time when residential sales are low, many real estate developers are exploring options to boost liquidity through strata sale of commercial assets. In fact, many are now listing anywhere between 25-40 percent of their office supply for strata sale, according to a report.
Strata sale of office and retail spaces are emerging as a lucrative option for some companies to maintain cash flows,
The rental yield for Grade A commercial assets anywhere between 8-10 percent, 6-8 percent for Grade B against average of 3 percent in residential. The average investment ticket size is anything between 10 lakh in tier-2 cities and nearly Rs 10 crore in tier 1 cities, says data shared by Anarock property consultants.
Early in 2019, realty major Prestige Estates announced its plan to strata sell 25 percent of its office assets to individual investors looking for plays in high-yield realty assets.
In what is now a rare win-win situation for real estate investors and developers, the former can earn high returns and the latter can generate liquidity for business expansion. For developers, strata sales also eliminate the need to manage commercial properties. Thus, the strata-sale route allows them to consolidate their rental business, said Anuj Puri, Chairman – ANAROCK Property Consultants.
Sliding ROI in residential property investment is attracting more and more HNI and NRI investors previously focused on luxury real estate to strata-sold commercial spaces. As per ANAROCK data, the 5-year average residential returns have been as low as 5% across major cities. In the 2000-2009 period, returns were double or even triple.
This is in contrast to the prevailing 3 percent average rental yield (annual rent divided by property cost) of housing, Grade A commercial assets generate yields of 8-10 percent and Grade B properties 6-8 percent. Regular retail properties can generate similar or even higher yields, depending on location.
For both office and retail properties, location - both at the city and micro market levels - is critical.
Cities like Bengaluru and Mumbai are among the most lucrative for commercial investment plays, but Hyderabad and Pune also have high potential because of relatively lower capital values and high demand. Office spaces in the CBD areas are ideal (and far more expensive) but suburban locations can also be suitable as long as they are well-connected by public transport.
As for documents for loan eligibility, consideration are the same for both residential and commercial properties.