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What is Better to Invest In? Residential or Commercial Properties in Mumbai?

Information Anna Fernandez 26 November 2017

High Rentals: As Compared To Residential Properties, Commercial Properties For Rent/Sale Fetch Higher Rentals.Longer Lease Periods Renting Out Of Commercial

The real estate market dynamics change so fast that the choice between investing in residential and commercial property is always a difficult one. In the past one year, implementation of demonetization, GST and RERA, along with increased tax benefits on home loans have significantly impacted the real estate prices across all cities, including Mumbai.

The financial capital of India has a population of 20.71 million which translates into high demand for residential property. This city also fetches the highest rentals from residential establishments across India. The main advantages of investing in a residential property in Mumbai are:

  • Stable Demand: Demand for residential properties is not directly related to economic conditions in the country which ensures persistent demand and occupancy in Tier I cities like Mumbai.
  • Steady Rental Income: As opposed to commercial establishments, residential properties carry a lower risk of vacancy and ensure a regular rental income.
  • Tax Benefits: Loans taken to invest in a residential property offer several tax benefits.

However, residential property investments have their own drawbacks. The owner is wholly responsible for the maintenance of the property. The legal hassles are also more as there are high risks of forcible occupation, encroachment and damage unless the landlord can pay regular visits, and keep an eye on the house and tenants.

The recent statistics show that Mumbai is fast-becoming a preferred destination for commercial properties. Mumbai, along with NCR & Bengaluru, accounts for 60% of total office space demand in India as of 2017. Mumbai has been listed as the best city in India for commercial real estate investment, with returns of 12-19% likely in the next five years, followed by Bengaluru and NCR.

Another report on reality update proves Mumbai’s soaring popularity in commercial spaces. In 2016, Mumbai was on the third spot at 6.1 mn sq.ft. after Bengaluru and Hyderabad in top 3 cities with the highest office leasing. As on the end of the first quarter of 2017, it has moved one position upwards.

Commercial property has been flourishing in Mumbai owing to high demand from startups, IT/E-commerce/Technology companies and multinationals looking to set up their back office infrastructure.

The major advantages of investing in commercial properties in Mumbai are:

  • High Rentals: As compared to residential properties, commercial properties for rent/sale fetch higher rentals.
  • Longer Lease Periods: Renting out of commercial spaces is usually for a block of years which ensures steady rentals over such period.
  • Legal Safeguards: The paperwork and legal aspects are well taken care of in case of commercial establishments which safeguards owners from the risk of encroachment. The rules around occupancy are also well defined and leave little room for dispute.

While one may argue that commercial property seeks high investment, there is always an option of buying a smaller property such as a shop or co-working space. Mumbai is expanding its geographical footprint suburbs and micro markets, which offer an opportunity to invest relatively at a lower amount.

A residential property should be your ideal choice if you are the first-time buyer without any own home. Commercial property in Mumbai is more suited for second-time buyers. Eventually, the decision depends entirely on your investment objective and expectations from the real estate investment.