Is Investment on Commercial Property better Option Now?

• @kw
• 06 Oct 2020

Financial Market has literally crashed due to slow down in economy post COVID-19 situation. The Mutual Fund returns were showing negative movement during the months of April to July 2020 and there is slight improvement now. Share market is showing downward trend. Extraordinary times call for extraordinary measures. The banks interest rates have almost bottomed out in the COVID -19 pandemic globally has changed the monitory policy upside down. Central Bank is in the rate cutting spree to save the economy from falling into recession. The Reserve Bank of India (RBI), too, has slashed the repo rate by a massive 75 basis points to 4.40 per cent. 

An investor looks for high return, risk free environment, future prospects for the growth of their Capital and peace of mind. There are many options though like a terms deposit in a nationalized bank are secured but offer low annual returns ranging from 7 % to 8.0% depending upon the period of the term deposit. No longer invest consultants can claim Mutual Fund a lucrative option which were offering quite promising  annual returns of 12 %  to 20% in  pre-pandemic period. The return of Mutual funds depend on the performance of share market with a large factor of uncertainties therefore a high risk investment. 

The price of gold has reached an all-time high following the economic fallout of COVID-19 hovering around Rs. 51,000/- for 10 grams and expert feels it will remain stagnant at this level and therefore not a good option to investment at present. 

Considering all factors favorable for Investors Best Investment opportunity lies in commercial properties for sure. The reason being many such as income from rentals, fast appreciation of asset value in potentially developing 2 and 3 tier cities, liquidity and security of investment. We may view this with a practical example with complete diagnosis. KW Delhi 6 in Raj Nagar Extension, Ghaziabad is a large commercial shopping destination is the best opportunity in offering for Investors considering all the four factors i.e., high ROI, Low Risk, Capital Appreciation & no uncertainty (peace of mind). 

The following calculation are made hypothetically considering the lowest investment for a shop of 100 Sq.Ft . Without considering its availability at present.

1. Investment against purchase of 100Sq.Ft. Shop

In KW Delhi 6 @ Rs.16,500/ per Sq.Ft. Rs.1,650,000/-

2. Miscellaneous cost i.e. Registration, Insurance etc.

@5% Rs.     82,500/-

________________

Total Investment                            Rs. 1,732,500/-

3. Rental income from shop @Rs.25,000/-PM

With incremental of 5% rent per annum for 5-years   Rs,1,657,688/-

4. Sale of shop after 5 years with at the market price after 5 years

Which can be very conservatively estimated to increase @ 3%  

compound per annum.   Rs.1,857,089/-

Total Return at the end of 5-years Rs. 3,514,775/-

Return of Investments(5-years) ……………….102.87%.....................Rs.  1,782,275/-

Comparative Analysis

Type of Investment Amount of Investment Annual return Risk Factor ROI at the end of 5-years

Nationalized Bank Term Deposit Rs. 1,732,500/-

8% 

(compounded annually ) No risk 46.93%

Mutual Fund Investment Rs. 1,732,500/-

15% /PA* High  Risk 101.13%

Investment in KW Delhi-6, Commercial Property Rs. 1,732,500/-

As per Calculation shown above No risk 102.87 %

* ROI though considered 15%  against mutual fund as per the past experience but due to COVID-19 pandemic a revised rate should be done considering the present market situation and is expected to be  even less than the return received from Term Deposits with Nationalized banks unless there is a sharp improvement in the economic activities in POST COVID situation.

It is therefore crystal clear that even with all conservative estimates against investment in Commercial Properties in Tier 2 and Tier 3 cities are the best option beyond any doubt and guarantees to multiply your investment with no risk factor what so ever.