Benefits of Investing in Commercial Property in Mumbai

The Indian real estate sector is estimated to be worth $1 trillion by 2030. As per a report from Indian Equity Brand Foundation, the real estate sector in India is growing at a CAGR of 9.2%.

The rising middle class and the desire to own a house has increased the demand for real estate in India. However, rising prices have also attracted the interest of many potential investors who desire to invest in real estate.

Who doesn’t want a piece of land in Mumbai – the maximum city? A city that is always awake, constantly busy, and full of energy.

What is Commercial Property Investment?

Investing in commercial property simply means you invest in a property which is operating for business purposes like warehouses, retail shops, commercial offices, etc. Apartment buildings that have at least five rental units also belong to the category of commercial properties. There are various benefits that can be achieved by investing in commercial properties. Let’s explore the advantages of investing in commercial properties in Mumbai.

High Capital Appreciation

• Commercial properties have higher capital appreciation rates than residential properties. 
• Every day over 200 people migrate to Mumbai from other states in search of job opportunities as per SVR Shrinivas, MMRDA Commissioner.
• As population increases, so will the workforce resulting in an increased demand for commercial spaces.

Steady Rental Income

• Commercial spaces command a higher rental price as they are larger and have a higher per square foot rate when compared with residential properties. Mumbai’s average deal size for commercial spaces has shot up from 25,971 sq. ft. in 2023, to 40,150 sq. ft. in 2024. Source
• Residential properties offer a meagre annual rental yield of 2-3% whereas commercial properties offer a substantial return of 8-12% and sometimes even higher.

Long Term Lease Agreements

• Commercial properties have long-term lease agreements typically ranging from 7-20 years compared to residential properties which have a lease agreement of just a minimum of 11 months. 
• This ensures that you can invest in a commercial property and don’t have to worry for a good amount of time.

Factors to consider when investing in commercial properties

Some of the important factors that need to be considered while investing in commercial properties are listed below.

Location

• The location is the most important thing to consider while investing in a commercial property. The location should have a wide range of connectivity options such as metro services, railway stations, airport, etc. The area should also be near to commercial areas like IT parks, coworking spaces, etc.

Potential for rental income

• The rental income should also be considered while investing in commercial property. 
• The type of occupants who will occupy the property and the timeframe for the lease agreement will decide the rental income of the commercial property.

Proper condition

• The condition and age of a commercial property must also be kept in mind while investing. It includes the repairs, renovations, and the cost to maintain the property.

Legal considerations

• The building should also be constructed according to the laws and regulations established by the government and the local authority. Failing which, the building may get demolished in no time.

Tax Benefits

• According to the Income Tax rules, commercial property owners can claim a standard deduction of 30% of the annual value for repairs, insurance, electricity, water supply, etc.

One thing that is associated with commercial property, is the type of net lease agreement being made. This is different from residential properties wherein the owner bears most of the property expenses. In net lease, the tenant has to bear a part of the expenses. Net leases are of three types: Single, Double, and Triple.

• In a Single net lease, the tenant has to pay the rent and taxes, and all other expenses are borne by the owner.
• In a Double net lease, the tenant has to pay the rent, taxes, and insurance premiums. The landlord is responsible for paying the maintenance costs.
• In a Triple net lease, a tenant has to bear most of the cost which includes rent, taxes, insurance, and maintenance.

How to Secure Financing for Commercial Property Investment in Mumbai

A strong credit score and furnishing the necessary documents can help you secure the right funding from lenders in order to complete your purchase of a commercial property. You can buy commercial property from Ajmera Real Estate. 

By comparing the best repayment options and interest rates available, you can secure the appropriate resources to complete your acquisition. A qualified financial advisor would be able to guide you through the entire process with ease.

FAQs

1. Why invest in a commercial property rather than a residential property?

   Investing in a commercial property ensures that you receive a higher rental income than a residential property. There are long term lease agreements involved unlike residential property agreements which last a minimum of 11 months.

2. What is the minimum investment required for commercial property in Mumbai?

   The minimum investment for commercial property in Mumbai varies depending on the location, size, and type of property. Generally, commercial properties in prime locations may start at a few crores of rupees, while properties in emerging areas might require a smaller investment.

3. How to calculate the rental yield for a commercial property in Mumbai?

   Rental yield can be calculated by dividing the rental income of the property by the purchase price of the property and multiplying by 100. For example: If a property has a rental income of Rs 10 lakh and the price of the property is Rs 1 crore then the rental yield is 10%.

4. What are the best locations to invest in a commercial property in Mumbai?

   Prime locations for commercial property investment in Mumbai include Nariman Point, Bandra-Kurla Complex (BKC), Lower Parel, Andheri, and new emerging areas like Navi Mumbai, Thane, and Goregaon.

5. What are the typical maintenance costs associated with maintaining a property?

   Most utilities, repairs, security, cleaning, and other maintenance costs for the general upkeep of a commercial property average between 2-5% of the property value on an annual basis. However, a more accurate estimate can only be available if you factor in the location, property size, state of the property, and other information such as tenant agreements.