Builders and Developers in Mumbai Shift Focus towards Commercial Property

Prominent builders and developers in Mumbai are leaning towards creating more commercial property in Mumbai as opposed to residential property as demand for the latter is subdued.

Who’s Wants to go Commercial?

Some of the top builders in Mumbai are gradually expanding their portfolio’s to include commercial property within Mumbai. Real estate insiders believe this shift is due to greater demand for commercial space and a subdued demand for residential property.

Why Go Commercial Now?

Demonetization led to lower demand for residential property in Mumbai and for residential property elsewhere in the country. Mumbai was impacted the hardest by demonetization due to the large role cash played in the sale of luxury and ultra-luxury properties in the city. Sales of real estate in 2016 fell by 9 percent and prices dropped by 14 percent in the same year.

Whereas residential property has suffered due to demonetization, commercial property in Mumbai looks like a bright alternative especially due to a policy that promotes Real Estate Investment Trusts (REIT’s). Nearly 43 million square feet of space was absorbed by commercial space last year, rising to an all-time high by nine percent from the year prior to last.

The demand for commercial space is being driven by sectors such as E-commerce, Information technology, Banking, Financial Services, and Insurance.

builders and developers in mumbai

What Led Us Here?

Experts within the real estate sector have stated that the tide had started to shift in favour of commercial real estate even before demonetization. A reason put forth for this is that investors are attracted towards commercial property in Mumbai because the returns earned on commercial property are superior to those earned on residential properties.

A Look at the Financials

In the days past, residential real estate in Mumbai was expected to appreciate by 10 to 15 percent. Even builders in Mumbai who earned a rental yield of 2 to 3 percent benefited greatly as the rental yields combined with appreciation in the value of property made residential projects a very attractive investment. However, the capital appreciation of residential projects in Mumbai has subdued significantly post demonetization, hence commercial real estate which provides yields of 7 to 10 percent looks more attractive.

Conclusion

Further evidence that the shift towards greater investment in commercial realestate in Mumbai began before demonetization can be gleaned from a recent metric which reveals that between June of 2015 and June 2016, investment by private equity players rose by 44 percent.

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