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Returns on commercial property rise to 12-15%


Returns on commercial property rise to 12-15%

Last updated: June 12 2007
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  • Returns on commercial property rise to 12-15%

    The slowdown in the real estate sector has prompted many real estate developers to increase the assured returns on commercial property from the present 8.5% to around 15%.

    As per this, even if the property in question does not get leased, the builder pays the buyer a certain fixed percentage till the time it is rented out. By offering this sop, the builder gets money for constructing the mall/office building and the investor an assured return. Because of the recent hikes in the interest rates, developers have increased this assured return from the prevalent 8.5-9% to 12-15%.

    The builder gives the assured return till the time the leased space is finally rented out. When it does go on rent, the builder gets the rent from the tenant, which is always more than the assured rent. So, the builder does have a lot to gain from such a deal. Investors, who give one-time payments, benefit the most as they start getting the returns from day one itself.

    "An investor wants security, especially when the property he has booked is still under construction. What if the mall he has leased space in does not take off ?" says MS Aggarwal, MD, MSX Developers. However, apart from bagging the investors’ confidence, what the builder also gets is a control over leasing.

    "By controlling whom the investor leases space to once the mall is fully operational helps developers in maintaining the zoning of a mall. If we have thought of a particular tenant mix for the mall, we can ensure that our plans do not go awry," says Amit Khaneja, VP, Collage Group. The company along with Express Builders and MSX Developers have been offering higher assured returns to their customers.

    Source: Financial Express
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