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Plots vs Residential vs Commercial Building for Investment Purpose

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Plots vs Residential vs Commercial Building for Investment Purpose

Last updated: June 1 2013
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  • Plots vs Residential vs Commercial Building for Investment Purpose

    Hi,

    I want to understand which one of these is best as Investment (Time horizon - 10 - 20 years):

    1. Plots

    Pros: Lesser entry costs as no construction is involved. Any plot in a strategic location which has growth potential would give good returns over a period of time.

    Cons: We need to ensure that there are no illegal encroachments and there will not be any monthly income, other than capital appreciation.

    2. Residential building

    Pros: Any residential building (flat model) in 1-3 grounds in a strategic location which has growth potential would give monthly rents and capital appreciation over a period of time.

    Cons: No value for building after 10 years, though rents would compensate to some extent.

    3. Commercial building

    Pros: Any commercial building in 1-2 grounds in a strategic location which has growth potential would give monthly rents and capital appreciation over a period of time.

    Cons: Entry cost is high and no value for building after 10 years, though rents would compensate to some extent.

    Members: Please provide your inputs on this, assuming the funds available is x amount only for any option chosen.
  • #2

    #2

    Re : Plots vs Residential vs Commercial Building for Investment Purpose

    What is the x amount.

    Comment

    • #3

      #3

      Re : Plots vs Residential vs Commercial Building for Investment Purpose

      I kept it as X so that we can discuss without going into affordability of the person in a specific area. Obviously residential land is going to cost much less than commercial land.

      We can take , for discussion purposes, a person has 2C, he can either buy residential land 1 Ground in Medavakkam and construct residential building and rent it out or he can just buy a 1 Ground plot in Velachery or he can buy land in Urapakkam in GST Road and build it for commercial purposes. Which one is the best in long run?

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      • #4

        #4

        Re : Plots vs Residential vs Commercial Building for Investment Purpose

        Buildings in IT parks are the cheapest and rents are good at 7+% today in Chennai.
        No residential property can beat it in price or yield.
        Commercial IT office space is the lowest it has been in quite a while. IT Office Space market is pretty much not moving at all. Meanwhile Govt is bring new supply like Ramanujan IT city coming up in Taramani.

        You can buy property on main OMR road (Shols or Thoraipakkam area) for 5000psft.
        City has a glut of IT buildings for sale, 10K in Guindy to 20K in RK Salai or Nungambakkam.

        Showroom/Retail space is expensive, so do not get confused.
        But even retail rental yield is good, but capital costs are high.

        Roadblocks for IT Office Space:
        Ticket size is big. Bigger the ticket, cheaper the deal.
        20-25Cr is the optimum size to get into a nice building.
        10-15Cr is the minimum size.
        Builders do not sell individual floors, they usually sell whole building.

        It is not easy to get clients for rent. Too much competition.
        So many vacant spaces in the city.
        Last edited May 31 2013, 03:30 AM.

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        • #5

          #5

          Re : Plots vs Residential vs Commercial Building for Investment Purpose

          Commercial buildings which I want to compare with residential buildings are only small ticket size - 1-3 grounds - may be rent it to banks (if possible, I know there are too many deterrents in that) or showroom space or small offices.

          Even the residential buildings compared with these commercial buildings would be limited to 6 - 8 2BHKs in one building.

          I want to keep it at lower levels possible for comparison purposes, as we are not going to invest like builders.

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          • #6

            #6

            Re : Plots vs Residential vs Commercial Building for Investment Purpose

            Originally posted by landie View Post
            Commercial buildings which I want to compare with residential buildings are only small ticket size - 1-3 grounds - may be rent it to banks (if possible, I know there are too many deterrents in that) or showroom space or small offices.

            Even the residential buildings compared with these commercial buildings would be limited to 6 - 8 2BHKs in one building.

            I want to keep it at lower levels possible for comparison purposes, as we are not going to invest like builders.
            The best part I like about India/Chennai is the dividind line between Commercial/Retail property and Residential property is blurred.

            KNK road, most part of TNagar,Annanagar, Ayyanavaram (MTH road area) etc is a good example.

            The difference seems to Road widith and distance to a main road.

            Any road that is over 40ft that is close to a 80ft or 100ft Bus route is a potential commercial/Trade Zone.

            So road width & area population seems to dictate the Zoning principles.

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            • #7

              #7

              Re : Plots vs Residential vs Commercial Building for Investment Purpose

              Agree with Eco, I bought a land with 40 yr old building. It was on 40ft road in a densely populated locality close to arterial road. The entire road is part commercial and part residential because it is widest road in that micro locality.

              The seller constructed the house with two entrances in front and he let out one portion for shop. In the remaining portion, he again subdivided with two more entrances: one behind and another one at the side. So there were totally 3 residential portions and 1 commercial portion downstairs. There was another portion upstairs where seller resided.

              I've rented it out to a small scale company to house their staffs. All of their 6 staffs ranging from supervisor to low level employee are housed there. The company pays be 15,000 rent pm.

              If you are ok with renting out to IT bachelors, you'll get great rental yield in Kelambakkam town. However land prices have shot up recently, so not sure if it is still a viable option.

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              • #8

                #8

                Re : Plots vs Residential vs Commercial Building for Investment Purpose

                For me, I hate for the fact that there is no zoning in India.
                Areas seems to get developed or not based on residents living in there.

                I hate commericial establishments in residential areas and residential buildings in commercial areas. Example of the later is the trend of builders turning commerical spaces into luxury buildings. Look at Dasaprakash Hotel turned into a apt complex, prime land on Nungmabakkam high road turned into a apt complex. Such nice parcels could have made way for a nice office tower, a beautiful skyscrapers.

                Town/City planning is done through FSI limitation instead of putting proper zoning rules. If even if they have one, our guys will break them.

                The massive price hike in nice areas is big reult of lax zoning laws or absence of it.

                The corporation does a nice job and put all the amenities required for a nice residential area to come up. All it takes one guy to spoil the location. There is no stopping a guy putting a tea shop, garage, road side food outlet, even a small factory, etc.

                This hinders the livability of the area. Certain areas of the city are totally messed up. Middle class end users are forced to move to suburbs in gated communities as the well to do public take up all the remaning nice areas.

                But I do understand it is really difficult to change into a zone based planning for Indian cities all of a sudden. Hopefully the introduction of industrial towhsips and residential townships help to an extent.

                Comment

                • #9

                  #9

                  Re : Plots vs Residential vs Commercial Building for Investment Purpose

                  @K11,

                  Not all bad story.
                  Yes I agree some areas are messed up.

                  My house is close to 2nd Avenue (over 100ft wide). My house on 40ft road just of 60ft road near Annanagar Tower Park.

                  The area used to so quite and less traffic until early 2000s.

                  Now that major showrooms like, GRT,Diva, Kalaniketan,Hi-Style etc etc has popped up in few 100 meters.

                  This has resulted in increased traffic in my street.

                  We have leased top 2 floors for a major corporations Auditing regional office.

                  we do consistantly recive request for lease for other commercial office purpouses like Bank Loan area centres, Bank branch, wealth management area office etc.

                  This wouldnt have happened in early 2000.

                  The 40 Ft Street is still reasonably quite but most houses are turing in to mid size offices or flats. No Tea shops, Mechanic shops etc.

                  The Advantage for the residents is, Medical Centers, Restaurants, fashon clothing, Banking, Forex,temples etc all or stone throw away.

                  When ever I am home, I ditch the car and walk or ride honda scooter to do all my day to day business.

                  This is in contrast to my in laws place in Shastri nagar, That still remains principlaly a residential area expect for the small portion near MG road or LB road area.
                  Last edited May 31 2013, 08:14 AM.

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                  • #10

                    #10

                    Re : Plots vs Residential vs Commercial Building for Investment Purpose

                    I prefer having streets completely residential. The main roads can be commercial.

                    I do not mind paying premium to be in a residential only community, or a properly zoned areas.

                    A gated community with commerical establishments outside would be fantastic.
                    I think some of the suburbs are heading in the right direction. Integrated townships built with commercial upfront and residential behind will be more popular down the road the commerical space is filled. Right now builders like Hira are doing residential first, which makes economic sense.

                    Coming to city, I feel certain areas of the city are much better. Most high end apt complexes do not allow offices, Some big bunglows of VIPs are left as residential, thus some streets are still fine. I think down the road in a few years situation might be better. It is slowly getting zoned itself.
                    Last edited May 31 2013, 09:08 AM.

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