Commercial Property requires a lot of planning before its purchase and there is a need of a clear strategy on what you have to do. As NRIs mostly buy commercial properties with the intention of getting a steady monthly income rather than for growing their wealth, it is important to define the following:
• Most important factor a NRI has to take into account is what type of property they are looking to buy
– Offices which comprise of business parks and ordinary office spaces
– Retail spaces like department stores, shops, showrooms, supermarkets, etc.
– Industrial spaces that include warehouses, factories, industrial estates, etc.
– Leisure commercial spaces mostly used for restaurants, pubs, hotels, etc.
• Next important question NRIs should ask is whether they are looking to buy the property for self-use or for rental purposes as there will be various considerations and factors they should look into based on its usage
• If a NRI is looking for a property for rental purposes then the question that has to be answered is whether they are looking at a pre-leased property, a vacant property, or a property under construction
• Once the above is determined, the next question is, in which city or location they are interested in buying the property. Is the rental income the main criteria or the location is more important as many times one has to make a trade-off between the two
• Risk taking capability is important as, for instance, if the NRI is a conservative investor then they should stick to a premium location rather than a vacant property or an under construction property
• Once an answer has been determined for previous questions then the next big question is how much money a NRI is willing to invest in the purchase of the property and how they are going to invest in the property – through their own funds or a loan
• Whether the NRI wants one single property for the amount they are willing to invest or do they prefer to invest in several small properties
• What is the income they are expecting from renting a commercial property
• If they are willing to collaborate with friends/business associates or they will be investing solo.
• Whether they are ready to take on the duties of a landlord
Then the next important variable is whether NRIs want to buy a pre-leased property or do they prefer an under construction/vacant property. This is important, as some NRIs prefer not to have the headache of finding a tenant and want the income to start from day one.
They have to keep in mind that normally pre-leased properties come at a higher valuation than a vacant or under construction commercial property.
Commercial properties also have some additional costs, namely, taxes, insurance, maintenance, repairs, etc. Whether they are buying a pre-leased property or vacant property is important to factor in these additional costs.
Things that NRIs should do before buying a commercial property are:
• Check whether the building, market, or plot has the Land Use licence for commercial purpose
• Whether the property has been registered with the local municipal authorities
• Whether the building or property has been built as per approved plans
• Whether the building has all the necessary licences as per local requirements
• If the building is pre-leased, it is important to understand the agreement. What the safeguards are for the owner in the agreement and what is the net inflow of the owner of the property after taking care of all the mandatory expenses
• Whether it is easy to find a tenant in the location where the property is located
• What kind of tenants one can expect in the location
• NRIs should get a basic idea on how long it takes to find a tenant for the property under normal circumstances
• Location is an important factor in the decision-making. It is preferable to buy the property in a premium location than a remote location but then again the final decision has to be taken depending upon the facts of the case
Factors NRIs should consider once the property has been shortlisted:
• What kind of tenant is currently available
• What are the restrictions in terms of the use of the property – a plot in an industrial area can only be rented out to a manufacturing company
• What kind of rent/income does the property currently generate every year and what are the future expectations on the same
• What kinds of taxes are levied on the property
• What kind of renovation, repair, or maintenance needs to be made in the near future
• What kind of Maintenance expenses are charged for the facility
• Why is the owner selling
• Any major upcoming changes that may affect the potential of leasing the property
• What is the value of the property in its surrounding area