According to Knight Frank India, it has long been a tendency for Bollywood stars and other well-known individuals, including HNIs, to engage in commercial real estate (CRE).
There are some Bollywood stars who buy commercial space with the intention of leasing it, even if there are plenty of cases of them living in rented homes in Mumbai rather than owning them or choosing to rent them out to others.
In order to better understand why Bollywood celebrities and other high net worth people (HNIs) like to buy commercial properties and rent them out rather than residential ones, Moneycontrol spoke to a number of professionals, including real estate agents and advisors.
The annual rental yield that the commercial real estate market gives compared to residential real estate, in the opinion of experts, is the main cause of this tendency.
Rental yield – what is it?
The amount a property owner makes each year from renting out a unit is known as the rental yield. The rental return for the property owner is 8%, for instance, if someone acquires a house in Mumbai for Rs 1 crore and receives Rs 8 lakh per year in rent.
Who has what rented out?
For a rent of about Rs 89.6 lakh per month in 2022, Bollywood celebrity Salman Khan leased out 27,650 square feet (sq ft) of space spread over four floors to TNSI Retail Private Limited, a division of Future Retail Limited, in Mumbai.
For rents of Rs 17.56 lakh and Rs 6.15 lakh per month in 2021, director Karan Johar leased out two commercial properties that he owned under the name of Dharma Productions.
For what purpose?
Commercial real estate is in high demand. Commercial real estate is in great demand as a result of economic expansion, the start-up scene, and other industries. High rental yields of between 6 and 9 percent are obtained by commercial properties. Aashish Panday, Director at Monksproperty.com, added that when a commercial property is rented out, it is for a longer period of time than a residential property.
He continued, “For instance, a residential property is rented for one to five years, whereas a commercial property is rented for three to fifteen years with a regular rent increase that may range from five to seven percent annually. The residential segment prohibits such rent increases.
According to Knight Frank India, it has long been a tendency for Bollywood stars and other well-known individuals, including HNIs, to engage in commercial real estate (CRE).
“This investment option becomes more appealing during uncertain times like now, when economies around the world are experiencing instability. According to Vivek Rathi, National Director, Research, Knight Frank India, such wealthy investors typically have high but unstable active/primary incomes, and commercial real estate investments have the potential to give them inflation-protected, stable annuity income in the form of rental cash flows.
He continued, “The commercial real estate asset class generates a higher rental yield of 6 to 7 percent compared to the residential segment, which garners 2 to 3 percent.”
The highest commercial real estate profits are in Mumbai
Commercial assets including offices, retail, and warehouses typically offer gross returns in metro areas between 6 and 10 percent, according to CBRE India, another major real estate advisory firm.
“In Mumbai, Grade-A office premises can readily provide an average yield of between 6 and 8 percent. In Mumbai’s best locations, retail assets can also provide yields of up to 9.5 percent. Anshuman Magazine, Chairman & CEO of CBRE India, stated that due to the high cost of land in Mumbai, the commercial real estate return in Mumbai is often greater when compared to other cities like Pune, Bangalore, or Hyderabad.
