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      By Sonali Chougule

      Published: October 11, 2024


      Tags
      • commercial

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      6 November 2024
      Diversification with SM REITs: A Smart Move for Risk-Averse Investors

      For a long time, commercial real estate has been the domain of large institutional investors and high-net-worth individuals. However, the launch of Small and Medium Real Estate Investment Trusts (SM REITs) is redefining this notion, offering a pathway for smaller investors to participate in the lucrative world of commercial real estate.

      So, what exactly are SM REITs, and why are they capturing the attention of cautious investors?

      Understanding SM REITs

      Small and Medium Real Estate Investment Trusts (SM REITs) are emerging as a sophisticated investment option, offering a strategic pathway into commercial real estate without the need for direct ownership. Structured as pooled investment vehicles, SM REITs allow investors to participate in high-quality commercial properties, from office buildings to logistics hubs and warehouses, generally valued in the ₹50–500 crore range. Unlike traditional REITs, which often target large institutional investors, SM REITs are specifically tailored to meet the needs of smaller investors. By lowering the capital entry barrier, SM REITs enable a more diversified, accessible approach to commercial real estate, allowing investors to gain exposure to income-generating assets with strong growth potential in India’s thriving property market.

      With a minimum investment of ₹10 lakh, investors can own a portion of prime, income-generating real estate. Now, even smaller investors can secure a foothold in the commercial real estate sector, participating in properties that are not only income-generating but also possess capital appreciation potential.

      Why SM REITs Matter for Diversification

      1. Portfolio Diversification Across Commercial Real Estate Segments

      SM REITs open doors to various segments within commercial real estate, including office spaces, warehouses, and logistics centers. For cautious investors, this diversification spreads risk across different asset types, offering exposure to multiple income-generating sources without the administrative complexities of direct property ownership. Diversifying through SM REITs enables investors to mitigate risks associated with single-sector investments and capitalize on the robust growth projected across India’s commercial real estate landscape.

      2. Liquidity and Flexibility Through Market Trading

      One of the significant advantages of SM REITs over traditional real estate ownership is liquidity. Unlike direct property investments, which are often illiquid and challenging to divest quickly, SM REITs are publicly traded on stock exchanges, allowing investors to buy or sell units as per market demand. This liquidity offers a substantial advantage to those who may need to exit their investments or rebalance their portfolios without the constraints associated with physical property.

      3. Regulatory Oversight and Income Stability

      The Securities and Exchange Board of India (SEBI) regulates SM REITs, providing a level of transparency and security that private real estate investments often lack. This regulatory oversight ensures adherence to high standards of governance and operational transparency. Additionally, SM REITs are mandated to invest at least 95% of assets in completed, rent-yielding properties priced above Rs 25 crore and less than Rs 500 crore with units to be issued to a minimum of 200 investors, ensuring asset quality and investor safety.

      For risk-averse investors, this aspect of income stability, combined with regulatory safeguards, enhances the appeal of SM REITs as a reliable investment.

      The Growth Trajectory of India’s SM REIT Market

      India’s SM REIT market is still in its early stages, but the growth potential is compelling. The launch of the first SM REIT IPO in August 2024 was a pivotal moment, representing the beginning of broader acceptance and development within this segment. Industry analysts anticipate a rapid expansion in this space.

      Research projects that the market will grow to over 300 million sq. ft. of completed with an addition of 50+ million sq.ft expected to be added by 2026. These numbers pertain to mid-sized (0.1 – 1 million sq.ft), investment–grade office developments in India’s top 7 cities as of Q2 2024.

      Integrating SM REITs into an Investment Portfolio

      For those who have traditionally avoided real estate due to high capital requirements or lack of liquidity, SM REITs offer a compelling alternative. With their mix of real estate stability and stock market liquidity, SM REITs bridge the gap between direct property investment and the flexibility of publicly traded assets, positioning them as a valuable addition to modern investment portfolios.

      The emergence of SM REITs is transforming India’s commercial real estate market, offering retail investors an unprecedented opportunity to diversify their portfolios with high-quality real estate assets. With regulatory backing, attractive entry points, and market flexibility, SM REITs are well-suited to meet the needs of evolving investors in India.

      As SM REITs become a pivotal part of a balanced investment strategy, SQUAREA offers the expertise to guide you in this promising sector. Connect with us today to explore tailored solutions that align with your investment goals.

      18 October 2024
      Things to Consider When Buying a Commercial Property
      With the rising global population growth, India has also seen a significant rise in its commercial real estate sector. The India Commercial Real Estate Market size is estimated at USD 40.71 billion in 2024, and is expected to reach USD 106.05 billion by 2029, growing at a CAGR of 21.10% during the forecast period (2024-2029). Given this trajectory, buying commercial properties presents lucrative opportunities for long-term returns. However, with these opportunities come significant responsibilities. It is crucial to conduct thorough research and exercise due diligence when making such investments. While commercial real estate typically requires larger capital outlays, a well-informed investment strategy can generate consistent cash flow over time. Here are some vital factors to consider before buying a commercial property.

      1. Market Analysis

      Before investing in commercial real estate, conducting thorough market research is indispensable. Assess the risk factors associated with both buying new properties and purchasing resales. While a new property might carry higher risks than a good resale, they can also offer better returns if located in a developing area. Evaluate the future growth prospects of the location, as well as the current demand for specific property types—whether office spaces, retail outlets, or industrial warehouses. For instance, the IT/ITeS sector remains the largest contributor to office space demand in Pune, accounting for approximately 71% of the total absorption, recording a year-on-year increase of approximately 12% in 2024.

      2. Location Insights

      Once you've identified your target market, the next key step is selecting a location with strong infrastructure and connectivity. Commercial properties located in areas with strong infrastructure connections—such as highways, subways, airports, and railroads—are likely to attract higher footfall and generate better returns. Accessibility to major business hubs, transportation networks, and visibility play significant roles in the success of your investment. Choose a location with expanding markets, proximity to business districts, and demographic advantages to ensure a steady flow of customers or tenants.

      3. Understanding Lease Structure

      When purchasing commercial property to lease it, understanding the lease structure is crucial. Familiarity with gross and net leases will in turn help in negotiating with potential tenants better. Key factors such as upkeep, repair responsibilities, lock-in periods, and taxes should be carefully evaluated as these elements directly impact the financial viability of your investment and the risk associated with it.  

      4. Choosing the Right Developer

      The credibility of the builder or developer is another critical consideration. Opt for a well-established builder with a strong track record of delivering high-quality projects. Scrutinize the developer's history, seek feedback from previous buyers, and ensure that the builder has proven expertise within the business. This will not only mitigate risks but also enhance the long-term value of your investment.    

      5. Investment Options

      Commercial real estate offers various types of properties, including retail shops, office buildings, industrial complexes, and serviced commercial outlets (SCOs). Evaluate your budget and select a property type that aligns with your financial goals. Conduct a detailed assessment of the property’s potential to provide returns, both in terms of rental income and capital appreciation, and also one that fits your risk tolerance and long-term goals. 

      6. Tenant Quality

      If your strategy involves leasing your commercial property, tenant quality becomes a key determinant of the investment’s success. Reliable tenants, such as multinational corporations (MNCs), can enhance the value of a commercial property by ensuring consistent rent payments, offering higher deposits, and committing to long-term leases. Furthermore, a trustworthy tenant adds to the overall attractiveness of your property for future investors or buyers.

      7. Risk Assessment

      Like any investment, buying commercial properties comes with its risks. It’s essential to evaluate your risk tolerance before deciding on a purchase. Avoid overextending financially, and be sure to continuously monitor market trends, geographic location dynamics, and the property's historical performance to gauge potential risks.

      8. Expert Consultation

      If you're new to real estate investments, consulting an experienced real estate expert can be invaluable. Professional consultants and property developers can guide you through the investment process, ensuring all legalities and market dynamics are properly addressed. This will save you time and minimize your costs while streamlining decision-making.

      9. Valuation Analysis

      Understanding the value of a commercial property in comparison to other properties in the vicinity is essential for making a prudent investment decision. Research prevailing rental rates in the area, review sales data for comparable properties and negotiate effectively with sellers. Consider various valuation approaches—such as cost, market, income, or sales comparison methods—to ensure that the purchase price aligns with the property’s true market value.

       10. Layout Considerations

      Before finalizing the purchase, ensure that the property's layout aligns with your expectations. Review building lines, setbacks, and site dimensions. A well-planned layout should include sufficient provisions for open spaces, roads, and essential infrastructure. Additionally, evaluate the adequacy of existing and proposed utility networks, including roads, drainage systems, and power supply connections. India’s commercial real estate sector is poised for continued growth, driven by economic expansion, urbanization, and technological advancements. By 2030, the sector is expected to reach a valuation of $1 trillion, indicating robust long-term prospects. A well-thought-out investment strategy, informed by diligent research and expert advice, will position you to capitalize on these opportunities. While the considerations outlined above are essential, they are by no means exhaustive. In the dynamic world of commercial real estate, factors such as market trends, financial discipline, and location remain paramount. And when in doubt, seeking guidance from a real estate professional is always a prudent course of action.
      9 October 2024
      SQUAREA to host the 2nd Edition of DUBAI PROPERTY EXPO at Conrad Pune this October with Dubai’s Top Luxury Developers

      Following the success of its first edition, which attracted over 500 visitors and investors, SQUAREA, a strategic real estate advisory firm with offices in Pune and Dubai, is set to hold the second DUBAI PROPERTY EXPO on October 6th and 7th at Conrad Pune, Mangaldas Road.