From Commercially‘Try’-able to Commercially Viable?

Commercial Real Estate Investments in '2008

Promises are the uniquely human way of ordering the future, making it predictable and reliable to the extent that this is humanly possible. - Hannah Arendt

The indications point that the Indian economy will moderate a bit in 2008, and the flow of capital into real estate will probably will remain focused on developing new properties. So we will continue to see the new commercial property development boom similar to what has already occurred in housing. And at the same time sustained increases in supply of such properties will decrease the profitability of commercial real estate within the next two years.

A report by DTZ suggests that

the NCR could have an surplus supply of 18% by early 2008, while Bangalore will witness an oversupply of 32%. Kolkata will have an surplus of 40% while Pune will see the maximum vacancy at 68%, followed by Chennai at 66%. Hyderabad too is expected to see 23% over supply by the first quarter of 2008. But the estimated oversupply is only in specific sub-markets of these cities.

The continued supply of new space for several years, could create enough new options to dishearten existing and new space markets by the way of increased vacancy rate and moderate rents in the mid term scenario. Consequently it’ll dampen the higher value appreciation that real estate has enjoyed in the past three years.

For tech savvy investors they’ll eye the higher initial yields from new Tier II/III city properties than rather than the existing ones. It is amply clear that the returns on a commercial property investment have a higher yield at 7 to 12% vis a vis a 5% rental yield in the residential sector, And if you were to chose amongst the best property investment options in today’s scenario, commercial real estate comes across an ideal choice.

Last two years have given a yield of 30% and 40% for any prudent investment in Real Estate. India's real estate industry has also gone from strength to strength. But now prospects for potential returns are moderating between 12% and 20% for next few years. Looming with uncertainties the Indian real estate market has only seen very negligible cut in interest rates while the land prices have gone galloping ahead with a gap which still lies unexplained.

For now, any short-term gains are out; and long-term scenarios still remain attractive riding on India's strong fundamentals. Optimism is the what the future indicators point to for Indian Real Estate in 2008. But Guarded Optimism is what it takes to succeed today as the market still needs to self regulate and organize.