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Given these challenges, investing in real estate can be a daunting task. Investors must carefully consider their risk tolerance, conduct due diligence on the type of property they should purchase, decide whether to invest in commercial or residential real estate, and allocate their capital.
Understanding Commercial Real Estate Investing
Commercial real estate (CRE) encompasses important market segments such as offices and industrial properties, including apartments, daycare centres, condominiums, cinemas, car parks, industrial floors, warehouses and retail spaces housing brands such as Big Bazaar and Croma.
Real estate that is used specifically for business purposes can be called CRE. Mixed-use spaces can also be used as commercial spaces and residential areas.
Understanding Residential Real Estate Investing
Residential real estate (RRE) typically includes rental housing rather than owner-occupied homes. This may sound like an oversimplification, but it's the same thing. Any property created for the sole purpose of living in is called residential real estate (RRE). RRE can also be part of a mixed-use space.
The main difference between RRE and CRE is in the way in which the property is rented or leased for commercial or residential purposes. Although the legal aspects of real estate investment are different, the basic principles are the same.
Growth of Residential and Commercial Real Estate in India
There are two real estate investment options available for purchase: commercial and residential, and depending on your financial situation and goals, both options may be viable for you.
Of course, you can invest in either type of property, but renting out a home requires a lot more work than owning a commercial property when you consider the time you need to spend on maintenance and communicating with tenants.
Let's look at the growth outlook for residential and commercial real estate.
Growth of residential real estate in India
The RRE segment recorded the highest home sales in the first quarter of 2024, registering a 20% increase compared to the same period in 2023.[1]
RRE sold 74,486 units and surpassed its previous first quarter figures with 5% year-on-year growth, thanks to new launches of 79,110 units.[1]
The affordable segment, which includes apartments below RRE 5 lakh, saw its sales share decline, falling from 27% to 15% in Q1FY24.[1]
Quarterly sales in the luxury segment, which includes apartments priced above Rs 30 crore, rose 11% in Q1'24 from 5% in Q1'22.[1]
The top seven cities (Bengaluru, Chennai, Delhi National Capital Region, Hyderabad, Kolkata, Mumbai and Pune) continue to stand out and account for the lion's share of RRE.[1]
The ultra-wealthy have 32% of their investment portfolios in the residential sector, with around 12% planning to purchase a new home in 2024.[2]
A survey recently released in the company's quarterly Real Estate Sentiment Index report found that the momentum in the rise in new housing starts continues, with the number of respondents who expect home sales to increase over the next six months jumping to 73%.[4]
Growth of Commercial Real Estate in India
The Indian CRE market size is estimated to reach $40.71 billion by 2024. The sector is expected to grow at a CAGR of 21.10% from 2024 to 2029, reaching $106.05 billion by 2029.[3]
The top seven Indian cities (Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune) have a major share of CRE investors. Delhi NCR alone accounts for 26% share of the total rented retail space in India.[1]
CRE sub-segments such as data centers, healthcare, hospitality, co-living and co-working spaces are likely to drive private equity investments.[1]
Commercial vs. Residential Real Estate
As with any investment vehicle, the determining factor in measuring the effectiveness of real estate investment depends on the investor's goals and assessment of the risks associated with commercial and residential real estate.
To understand the prospects for real estate investing, let’s explore the key differences between CRE and RRE to see which one best suits your needs.
For commercial real estate
Regarding residential real estate
Commercial vs Residential: Which Should You Choose?
Would investing in commercial real estate make more sense? However, you need to understand these investments to evaluate their merits. The answer to this question doesn't necessarily have to be “yes” or “no,” but it's worth considering both options.
This method works if you clarify your goals and determine the amount of money you need to invest to earn your desired investment return within a specific time frame. The general rule is that real estate assets will only generate high returns if you hold them for a long period of time – more than two years.
For investors, RRE is more accessible than CRE and offers better options for customizing your portfolio. Real estate investing requires consideration of two key factors: risk and goals.
The potential risks can lead to losses. The investment returns will justify the investment only if the property has sufficient occupancy throughout the investment period. Before investing in either the commercial or residential real estate sector, make sure you research all the options available to you.
source
JLL [1]
Financial Express [2]
Mordor Intelligence [3]
Knight Frank-NAREDCO [4]
Frequently Asked Questions (FAQ)
What is the difference between commercial and residential real estate?
The main difference between RRE and CRE is whether the property is rented or leased. CRE properties consist of office and industrial properties, while properties built solely for residential purposes are residential properties.
Which is better for commercial or residential use?
Commercial or residential investments have their pros and cons (as mentioned above), and investors should research the options available to them before investing in real estate.
Is commercial or residential use at higher risk?
Investing in the real estate sector can be risky due to its volatility. As the economy fluctuates, so does the commercial and residential real estate sector. In both investments, having tenants to rent the property is crucial. Learn more about how to minimize the risks of investing in real estate.