Commercial Property vs Residential Property: Which is the Better Investment?

Real estate investment has been the preferred option for wealth creation since ages. The statistics have consistently put real estate into the most appreciating asset, along with higher rates of returns and tangibility. Property investment could be classified into 2 major types: commercial property investment and residential property investment.
In this blog, we would be discussing differences between commercial and residential properties and getting into depth to help you make an analysed decision while choosing between commercial property vs residential property.

Understanding Commercial and Residential Properties

Before diving into commercial vs residential property, let’s understand the basics of commercial and residential properties, their subtypes, and usage:

What is a commercial property?

Commercial property refers to a type of real estate project exclusively available for business or commercial purposes. It acts as a fantastic investment opportunity in real estate with a promising high ROI. Commercial spaces include retail shops, food courts, high-street avenues, shopping malls, multiplexes, and office spaces, among others.

To tap on the potential of real estate bloom in India, leading real estate developers such as DLF Limited, Paras Buidtech, M3M Group, Piramal Realty, Mahindra Realty, Elan Group, Godrej Properties, etc. have initiated their top-notch commercial projects in various strategic locations across the country, offering high-end amenities and favourable rental yields.

What is a residential property?

Residential property refers to a type of real estate project that includes newly constructed or resale homes for living purposes. Residential apartments include studio apartments, 3 BHK, 4 BHK, and 5 BHK flats, penthouses, and duplexes.

Residential Property for sale in leading cities like Noida, Gurgaon, Bangalore, Mumbai, Pune, and Hyderabad features thoughtful design layout, ample options in social and infra amenities, along with seamless connectivity through various major expressways of India, international airports, and other public transportation systems such as metros, local trains, cab rides, etc.

Commercial Property Vs Residential Property: Check table:

Commercial Property vs Residential Property | Key Differences

The real estate industry in India is blooming at an exponential rate, currently valued at $477 billion, just second to the agricultural sector, and contributes 7.3% to the country’s GDP. Due to the rise in demand, renowned real estate developers in India are offering state-of-the-art commercial and residential properties with promising capital appreciation, high ROI, and competitive rental yields. But before investing, let’s understand the differences between commercial property and residential property and make a high-impact real estate investment.

Purpose and Usage

Let’s differentiate commercial property vs residential property on the basis of purpose and usage:

• Commercial Property

  Commercial properties are designed for conducting business activities, such as retail spaces, high-street avenues, office spaces, food courts, multiplexes, industrial facilities, etc. It is ideal for people looking for a space to run their business-related errands or seek income from tenants.

• Residential Property

  Residential properties are typically used as living spaces for individuals and families. Types of residential apartments include studio apartments, 2 BHK, 3 BHK, and 4 BHK apartments, penthouses, duplexes, and independent homes/villas.

Cost of Investment

Let’s differentiate commercial property vs residential property on the basis of cost of investment and expenditure:

• Commercial Property

  Commercial properties require a higher initial investment and subsequently demand higher maintenance costs due to their infrastructure, utilities, and other business-related needs.

• Residential Property

  Residential properties require a lesser initial investment cost and are easily accessible to early-stage real estate investors. It also demands minimal maintenance.

Capital Appreciation & Rental Yields

Let’s differentiate commercial property vs residential property on the basis of capital appreciation and rental yields:

• Commercial Property

  Commercial properties are widely recognised for their high rate of price appreciation over a shorter span of time along with lucrative returns on investments. Commercial spaces also help buyers get competitive and favourable rental yields, providing them a steady source of income.

• Residential Property

  Residential properties offer moderate but steady capital appreciation and a lesser amount of rental yields in comparison to commercial spaces.

Risk Factor

Let’s differentiate commercial property vs residential property on the basis of risks involved while purchasing:

• Commercial Property

  Commercial properties are usually more prone to risks like economic fluctuations and market instability, as it directly impacts the tenants.

• Residential Property

  Residential properties are comparatively safer and possess lower market volatility. The demand for housing makes residential spaces immune to economic fluctuations and market instability, hence a safe and stable option for real estate investments.

Factors to Consider before choosing between Commercial and Residential Property

Real estate investment offers a promising chance for wealth creation but requires due diligence and an in-depth understanding of the market trends. Consider out the points below before choosing between commercial and residential property.

• Investment Goals: Make clear investment goals and expectations. Commercial projects require higher upfront costs in comparison to residential projects.
• Location and Demand: The location of both commercial and residential projects is pivotal and contributes significantly to price appreciation and ROI. Invest in real estate projects that are located in strategic locations and provide seamless connectivity.
• Budget & Financing Options: It is important to plan out your budget and expenditure before investing in commercial or residential projects and explore various financing options like loans, etc.
• Market Trends and Economic Outlook: Before you buy a commercial shop or a residential apartment, look for market trends and analysis and study the growth and economic performance of the location and city.
• Builder’s Reputation: The reputation of the real estate developer is crucial, whether you are investing in commercial or residential property. Check the delivered projects of the builder and make sure they adhere to quality construction and timely delivery.
• Legal Documents: Check for legal documents and RERA authentication of the real estate project you are interested in. Make sure the project follows all the regulations and guidelines laid out in the RERA Act, 2016.

Frequently Asked Questions (FAQs)