In the early 2000s and till 2010, the residential property was ruling the roost when it came to investment. It was a time when the properties were available at reasonable prices and capital appreciation was very high. In fact, almost all residential projects used to have more than 50 per cent investors and the ratio of end-users was less.
Gradually, a time came when developers focused more on the end users and tried their best to attract them. The hard work paid off and in the last few years, the residential segment is getting around 70 per cent end users and only 30 per cent investors. And most of these investors are coming with long-term goals unlike the investors of last decade. This trend can also be linked to the fact that prices in residential have reached a point where very high capital appreciation is not possible and rental incomes are also not very lucrative. For the sector, this is good as it is helping in achieving the target of 'Housing for All'.
However, the investment in residential real estate of tier II and tier III cities is still a lucrative option and some of these places are still getting a large number of investors. As the population of these towns is less, people from tier I cities are investing with an eye on future appreciation. So for residential, the shift has taken towards these smaller places and keeping the hopes alive for the investors.
In all this, commercial segment has emerged as the place where investors are now more inclined. The segment -- industrial, retail and frontier segments such as co-living -- is expected to see a lot more scope as the business environment is improving in the country. An increasing number of MNCs, start-ups and small businesses are on the lookout for commercial spaces on lease to run their businesses smoothly. It has also been made possible because of the increasing rentals in central business districts and major areas of tier I cities.
The properties that are coming up in nearby areas are at a reasonable cost and the rentals are also at a much lower level making it lucrative for these companies. When we look at the investment to rental yield ratio, the odds are in favour of investors who invest less and yet get good income from rents and leases.
This was the reason that last year, the segment witnessed a jump of over 21 per cent in new supply as compared to 2017. By 2020, there will be a commercial stock of 600 million sq ft and office space leasing of around 100 million sq ft. Then there is an increasing demand for co-working space. All these factors are working wonders for investors who are grabbing the opportunities as they come.
For commercial segment also, tier II and tier III cities are emerging as the go-to destinations. With 6-10 per cent rental yield, the commercial segment is holding the fort and is turning out to be the best option for people with short-term goals.
In conclusion, it can be said that every investment gives back something extra. The only difference being the time limit. It all depends on the investment goals that an investor has and the decision has to be taken accordingly.
Dhiraj Jain is Director at Mahagun Group