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Return on investment makes city centres more attractive!

The World of Fractional Real Estate and better return on investment

Location is the bedrock of real estate investing. Then come other factors like seller’s brand, quality, cost of EMI (Equated Monthly Instalment), and expected RoI (Return on Investment) among others. Location determines the value of land and the associated building premises. The location of any property is the guidance rate determiner.

Location is the complementary gift that the suitor gets when an individual buys a property. By buying a property in a said locality, the investor not only gets the right to live, stay and work in that locality but also reaps the benefits and amenities that the neighbourhood provides. Thus, the more attractive the gift is, the more premium the property will command.

Different buyers have different needs and reasons and that plays a deciding factor in scouting out the location before buying properties. But as far as investments in real estate properties are concerned, the thumb rule is going for locations that are at the core of the city.

The bustling areas of central business districts and city centres are the best locations for prospective investors, given the land supply in the area is inelastic. Contrast this to the outskirts, where land is more widely available. The more one moves away from the centre, the more he or she would find the property values fluctuating, rendering their investment a risky proposition.

Return potential high in CBDs:

While buying a real estate property, a suitor examines the value of both the land and the building structure. Land plus building value together constitutes the amount asked by the seller. Therefore, investment in CBD (central business district) and city centres is ideal given the short supply of land assets. No wonder, return on investment tends to be better on properties in these prime locations than others.

Comparatively, the commercial office segment as an asset class has fared much better, with high demand for such space and huge institutional investor interest. Their locations are just too good — too central, too dense, and with too much infrastructure and architecture — to remain vacuums for long.

Ease of Connectivity: 

With bustling commercial activity, the city centre houses retail, shopping, entertainment, and business establishments. Thus, leasing opportunities are way better in CBDs than in other locations of the city. Moreover, connectivity is another important factor in making the CBD location attractive.

Currently, most CBD areas of metro cities in India including New Delhi, Bengaluru, Hyderabad, and Kolkata are connected through metro rail facilities. Such ease of connectivity, employment opportunities, & business activities make it lucrative for leasing activity.

According to Knight Frank India’s Asia-Pacific Prime Office Rental Index for January-March of 2022, Delhi-NCR has the most expensive office spaces in India and the 9th most costly prime office space in the Asia-Pacific region. Connaught Place of Delhi is considered one of the most expensive office spaces in the world. So, investment in city centres and CBDs is always considered safe in terms of their return potential.

Warehousing vs Office

Warehouse investments in India generally have a lower capital appreciation potential than other commercial properties such as office spaces. This is primarily because most office spaces are located in the heart of cities, whereas warehouses are spread across the length and breadth of the country, which includes the hinterland where real estate value appreciates at a lower rate than in urban centres. For example, news of an MNC opening its new office facility in a metro is common, while such events rarely happen in a tier-III city.

Similarly, a property that houses a warehouse will not just see a definite fall in its building value due to depreciation but also becomes useless when the tenant leaves the entire premises. Also the proportion of total cost of Building (Depreciating asset) vs cost of land (Appreciating asset) is high. Further if the property is under construction, there is construction completion and approval risk which gets added on.

Offices are mostly located in central business districts, where the land supply is scarce. And because of this, land appreciates manifold. Thus, even if the building value depreciates, the land compensates it adequately. Many offices constructed earlier have not fully utilised allowable FSI (Buildable Potential). This gets unlocked during redevelopment. Therefore, investment in CBD and city centres is a prudent financial decision for long-term capital appreciation along with the regular return and the option to retrofit in absence of a tenant.

BHIVE is offering an opportunity for investors to invest in a Grade A commercial property built by Salarpuria in the Prime CBD location at Koramangala, 100 ft Road. The building with all approvals is located on its own independent land parcel which itself is very valuable. Rental Returns are over 10 % average. Total returns including capital appreciation are estimated at 15%. Further this opportunity is available at a ticket size of Rs 20 lacs onwards with attractive limited time scheme.



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