Commercial real estate has always remained an attractive asset class for high yield investment. Compared to other yield products like fixed deposits, debt funds, AA/AAA rated paper, investing in CRE provides various additional benefits especially to the NRI investor. There are tech-enabled commercial property investment platforms that guides NRI investors to diversify their portfolio by investing in rent-generating commercial properties in Tier 1 cities in India. NRIs comprise of investors, who come from diverse backgrounds like oil and gas, financial services, technology, manufacturing, among others. Here are some of the benefits and potential pitfalls of CRE investing. Commercial real estate’s attractiveness stems from the “yield”, the rental return that an investor earns from investing in a leased commercial property. Yield is nothing but rents/all-in price. It is important to note that it is ‘All-in’ price and not purchase price. Many inexperienced investors wrongly calculate yield as rent/purchase price without factoring additional purchase costs like registration and stamp duty, lawyer’s fees, brokerage etc. These costs tend to add up to 10 percent to the purchase price and can therefore reduce the yield by 10 percent. The yields on CRE can be between 7-9 percent, much higher than the 4-5 percent currently available on FDs or 7-8 percent on AAA debt funds. In situations such as the COVID-19 pandemic, NRI investors can increase their yield further by making use of the depreciation in the rupee/dollar exchange rate. A 5 percent depreciation can increase the yield from 8 percent to 8.4 percent.
