Residential propety

Changing residential property to commercial is full of dangers, says Gulam Zia

Photo: iStock

HIGHLIGHTS

  • Commercial properties attract business water and electricity charges
  • Commercial property offers higher returns than residential property
  • Pre-leased property would be more advantageous

New Delhi: Have you been keen on buying or converting an existing residential property into a commercial property in hopes of getting a better return? If so, beware of the perils of your move.

Gulam Zia, Senior Executive Director of Knight Frank India, has warned property investors against such changes. He said, “Changing the use of property is fraught with danger. The moment you enter commercial utility, your cash outflow will change and if you don’t do your due diligence, you will have to face the authorities.

Why will cash outflows change?

Once the property is put into commercial use, you will need to pay commercial charges for water and electricity supply. These fees would depend on the size of the area and the nature of the business.

Related News

The real estate sector is ready for another super cycle Chris Wood

The real estate sector is ready for another super cycle: Chris Wood

Despite Repo Rate Affordability Rising to All-Time High, Experts Say

“Despite an increase in the repo rate, accessibility at an all-time high”, experts say

Therefore, Gulam Zia advised investors to be cautious before taking the plunge. One should make sure that they are getting the right return on investment before investing in the asset as it does not offer easy liquidity.

It should be noted that certain commercial activities are exempt from commercial property fees such as tuition fees, yoga classes, etc.

If you are one of those who are still interested in buying a commercial property, Gulam Zia suggested buying a pre-leased commercial property. This will help you reduce marketing expenses that are usually borne by the landlord and buy a pre-lease whose lease is about to end. This will give you the opportunity to renegotiate the rent on your terms.

Another way to benefit from a commercial real estate investment is to not make full payment, but rather to opt for a mortgage. Amit Kukreja, Founder of Amit Kureja Advisory, said: “Buying property as a mortgage is advantageous because it increases leverage, resulting in higher gains compared to other types of mortgages. ‘assets.”