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Real Estate vs. Other Investments

When you think of investing, you can do it in a variety of ways including real estate, bonds, stocks, CDs, or even gold. Thanks to the array of options, it often happens that one investment choice is more lucrative than the other. Based on current market conditions, it is also important to be aware of the type of investment to avoid and when? 

Let’s take a look at real estate investment vs. other investments to help you narrow down the options that are suitable for you.

Real Estate vs. Stocks 

Stock prices are deemed to be more unpredictable as compared to real estate. The rates of stocks can fluctuate quicker than real estate prices. The instability can make you apprehensive unless you plan to purchase and hold stocks, despite the unpredictability. 

Investing in real estateissimpler and better to understand than stocks. The housing sector in India is enormous which makes the home-buying journey multifaceted. But despite the complexity, the basics are quite simple. Moreover, owning a tangible asset can make you more in control of your investment when compared to purchasing slivers of ownership in firms via shares of stocks. 

Real Estate vs. Bonds

Despite their low-risk nature, investors may realize that bonds do not deliver the same profitability when pitted against other investments, particularly real estate in India. In numerous cases, the returns could be considerably affected by the rate of inflation. On the other hand, you will observe significant real estate growth and development during inflation. 

As material and labor expenses rise, rent typically follows, resulting in real estate investors achieving greater profits during this period. Bonds are not known to deliver the best returns as real estate. Across the board, rental properties generally outperform bonds thanks to their capability to produce cash flow, even during inflation or low-interest rates. 

Real Estate vs. CDs

Despite the low-risk investment opportunity, Certificates of Deposits (CDs) typically have lower profit margins when pitted against real estate. The potential for profits in CDs is directly affected by interest rates. When they are low, investors will not be able to get a high return on investment. 

It could take approximately 5-10 years for CDs to mature. Investors will not be able to use their funds during that period. But real estate showcases more liquidity. Even if investors are not able to sell a property, you can still tap into the current equity in many ways. 

Real Estate vs. Gold

Investing in gold may be a simple process but it is a long waiting game as compared to real estate investing. Thanks to the concept of price appreciation in real estate market, you can earn revenue as you wait for an asset to escalate in value, thereby leading to a higher overall cash flow. 

In a nutshell, while stocks, bonds, CDs, or gold are solid forms of investment and each of them has its own pros and cons, real estate delivers cash flow that is directly connected to the decisions you have made. Overall, investors may observe that real estate signifies the likelihood to produce yearly cash flow and profit from appreciation over time. 

At CRE Matrix, we have assessed vital real estate data comprising residential, commercial, retail, and warehousing, across different industries in India. CRE Matrix’s product IndexTap helps in making real estate investments with its extensive catalog of residential properties in MMR. 

For more such exciting analysis and details on real estate, visit CRE Matrix.

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Importance of Data Intelligence in the Real Estate Market

Nowadays, data is changing the way businesses operate all over the globe by delivering rapid, valuable, and key insights. The most vital ‘raw material’ pushing the real estate market is data. It helps in unraveling new potential levels, from lead generation to work, efficiency, and ultimately reporting the findings. From evaluating a plethora of surveys and assessing products to developing future policies and solutions, data collection in real estate has slowly evolved into a distinct field of study. 

Let’s take a look at how data can contribute to the ever-developing real estate market:

Location

For both commercial and residential real estate, data can prove to be immensely useful. Real estate data providers in India offer their clients significant insights into the existing market patterns and trends. They ascertain the viability of various locations that are contingent on rental income, investment return, ratings, traffic, and occupancy. 

Customer Trends 

It is vital to have an in-depth understanding and awareness of the market trends when you’re investing in a residential or commercial property. Real estate developers must realize and comprehend the requirements of the customers, and this is where the significance of data enters into the picture. Developers can invest better if they understand basic factors such as competitors, the need for amenities, affordable housing, and so forth. 

Evaluating Competition 

If you’re the best real estate data analytics company, you would help in assessing the performance of the competitors. The data analytics firm offers comparable data for you to measure where you stand in the market. After a comprehensive analysis, you can come up with strong strategies to combat the competition and improve your position. 

Investment Performance 

Similar to two peas in a pod, no two properties can be identical. The different variables of every property are unique. It also applies to two separate properties in a single building. As time passes, these values also go through modifications. This is why it has become taxing to trace the sub-market performance of the properties. This is where data intelligence from a cutting-edge real estate analytics platform can assist in scrutinizing the fluctuating rate of the assets over time. 

Simpler for Home Buyers

Data intelligence is not just to benefit brokers and real estate developers, but it can also make it easier for those who wish to purchase or rent homes. It also helps in simplifying the research process to zero in on your dream house. The rates of various real estate properties can differ, thereby ascribing numerous factors such as neighbourhood quality, connectivity, available transportation modes, and so forth. In this scenario, real estate data analytics India can aid in accelerating the decision-making of the buyer, about the location.

At CRE Matrix, we have evaluated crucial real estate data of several companies across India. CRE Matrix is India’s most preferred authentic data analytics platform that allows stakeholders from various industries to evaluate and compare leasing data and more. 

For more such exciting analysis and details on real estate, visit CRE Matrix.

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Homebuyers Alert! Indian Real Estate Property Prices to Rise Soon

The Indian real estate market has always been riding high on the wheels of volatility and dynamism owing to several social, political, and economic factors that keep on affecting the prices of the properties. Time and again, the industry has proved that it is far from accomplishing the stability of prices that affects the homebuyers the most at the end of the day.

This time again there have been various theories and stories within the close circuits of the investors, brokers, and homebuyers that the prices are surely going to elevate with the increase the prices of various materials such as steel, cement, sand, red brick, and others. Price rise in the purchase of these materials that are vital for the construction of the project will be loaded on the customers by the developers at the end of the day as they too have to recover their cost of expenses and run the show successfully. Though the prices of the materials have been increased, the same will be applicable in the price charts of the properties very soon as per various analyses and predictions by the common man as well as industry critics and insiders.

The Russia-Ukraine Crisis is deemed as one of the major reasons for the price hike that has affected other commodities prices such as oil. As per CREDAI,

  • The price of steel has gone up from Rs. 42,000/- to Rs. 84,900/- per tonne and cement by Rs.260/- to Rs.400/- per bag now.
  • The rates of four-inch brick have also elevated from Rs.6,500/- to Rs.8,000/-. The price of sand (per brass) has gone up from Rs 6,000/- to Rs 7,500/- now.
  • The price of wash sand (per brass) has also gone up from Rs 3,800/- to Rs 4,800/-.

The economic recovery of the Real Estate Market post the first and second wave of the pandemic was just the ongoing process and buyers have just begun to warm up to the market. There was a considerable rise in sales in the luxury housing markets in year 2021. We believe this handsome resurgence in Housing sales will see mean reversion as increase in home prices is surely going to affect sales.

According to the Reserve Bank of India House Price Index, average house prices rose by just 2.5% in the previous year and a further jump in the upcoming fiscal year will surely burn a deep hole in the pockets of home buyers and investors.

With various theories and stories floating in, the outcome will be pretty clear in the coming days but it is never a bad time to invest in real estate or buy your home owing to its high ROI and price appreciation.

For more such exciting analysis and details on real estate, visit CRE Matrix.

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Real Estate Lending 101 – What is Construction Finance?

Construction Finance has been a popular loan segment which has been keenly observed by stakeholders beyond the real estate sector as well, as it acts as a barometer of construction activity to a certain extent. CRE Matrix, through this blog article, takes you through the A to Z of construction finance.

commercial real estate

What is Construction Finance?

Real estate developers need a consistent flow of funds for numerous construction-related works at various stages of projects to guarantee the timely completion of projects. Construction Finance loan is generally intended to meet this need of real estate developers across the life cycle of their intended or ongoing construction projects against the project sales receivables.

Since they are deemed to be comparatively risky, construction loads tend to have higher interest charges as opposed to conventional mortgage loans.

Why Do Contractors Need Construction Finance? 

Construction businesses generally have huge up-front expenses that burn through cash at the commencement of a project, much before payments start rolling in. This gap makes it tough to monitor cash flow from the beginning of a job. Contractors usually require financing to progress: to pay for material expenses on larger projects, to fund new equipment, or to match escalated payroll expenses. Financing can aid construction businesses to smooth out cash flow cycles whether the economy is declining or proceeding towards a construction boom.

Features of Construction Finance 

  • Loans that can be availed by the best real estate developers/builders
  • Can be used for growing and building residential or commercial sites
  • In Tier 1/Tier 2 cities, customized offerings to suit the requirements of  developers

Benefits of Construction Finance 

  • Professional and transparent technique
  • Organizing enormous funding from banks/financial institutions arranging bank guarantees
  • Flexibility in tenor as well as offering a variety of options for repayment
  • Enable tie-ups with banks/HFCs to offer housing finance to customers (home buyers)
  • Strong and effective service delivery model that provides door stop facilities to guarantee simple and quick approval and disbursal of loans

In a nutshell, construction finance loans are usually taken out by real estate developers or homebuyers who are custom-building their own houses. After construction has concluded, the borrower can either refinance their construction loan into a permanent mortgage or acquire a new loan to repay the construction loan (occasionally referred to as the ‘end loan’). 

The borrower might only be needed to pay construction loan rates or interest on the loan while the project is still ongoing. A couple of construction finance loans could entail the balance to be paid off completely by the time the project is complete. 

CRE Matrix, via RE Loans, gives a detailed insight on construction finance loans by numerous developers across the country and the banks/NBFC/funds that provided the loans to them. CRE Matrix is the country’s most preferred authentic analytics platform that allows stakeholders to access analytics from an array of sectors. Users can assess and compare construction finance loans and do so much more on CRE Matrix platforms.

For more CRE industry insights and data research do contact us.

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Real Estate Leasing 101 – Deep Dive into Rent Free Period

When drafting a leasing contract, both tenants and landlords need to be mindful of all the clauses that are present in a commercial lease agreement. There are numerous general clauses in a rental agreement form.

However, specific clauses are significant in their effect on the lease relationship and need to be given extra attention while preparing agreements. A couple of these clauses comprise of the security deposit, rent-free period, force majeure, indemnity provisions, and the right to renew or prolong the lease.

Let’s look at rent-free period in detail:

What is a Rent-Free Period?

The rent-free period is approved by both the tenant and the landlord. Therefore, the renter is not obligated to pay the rent during this time. This duration is used to facilitate the tenant to set up and establish all the needed equipment for them to utilize the commercial property for the proposed reason.

This duration can increase from three months to eleven months, contingent on the scale and extent of installation needed in the property. This period can also be stretched if the requirement arises. Nevertheless, it would be good to cite the maximum length of the rent-free period after joint agreement between the two parties. A clause declaring that the fit-outs may be eliminated and taken back by the renter can also be integrated in a commercial lease agreement.

Benefits of a Rent-free Period

  • If the landlord is promoting a new lease of commercial property and wishes to provide a rent-free period as an incentive to prospective occupiers, particularly if renters are apprehensive about startup expenses or footfalls in the present economic climate.
  • If a significant ‘fit-out’ work is required to place the commercial property into an appropriate condition to permit the tenant to trade. In such a scenario, a rent-free period will facilitate the renter to make use of the cash which might otherwise be utilized on rent to execute the works and enhance the condition of the premises. For instance, if work is essential to fulfill the health and safety protocols for a restaurant, or if the occupier is altering the use of the property and needs to basically modify the layout.
  • It can assist the renters’ cash flow during an existing lease, with a view to enable the future landlords’ rental yields. In this case, negotiation could have a landlord consenting to a lower rent with their occupier during an existing term in return for other revisions to the lease. For instance, if there is a break clause, the tenant assents to push back their ‘break date’ or relinquish their right to break and thus essentially extends the overall length of the term (by a tenant waiving their capability to end a lease early).
  • If the lease is about to expire soon and the landlord wants the existing tenant to continue with their arrangement, then a rent-free period clause could be offered to the tenant. It can be a way to mitigate the renters’ temporarily delayed cash flow, instead of forfeiting their lease or having to take other enforcement action.

In a nutshell, rent-free periods are especially common when times are tough economically. This specific incentive is offered to motivate tenants to sign leases. It is interesting to reflect as to why a landlord does not lower the level of rent and instead opts for rent-free period as this allows him to charge the same rent from other prospective tenants, who may not fully know about the rent-free discounts.

At CRE Matrix, we dissect every lease and figure out the effect of rent-free period on the overall lease economics.

For more CRE industry insights and data research do Contact us.

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Real Estate Leasing 101 – A to Z about CAM (Common Area Maintenance) Charges in India

Negotiating a lease for your business is not only a complicated procedure but if you’re a novice at it, you will most likely stumble into several new, possibly confusing concepts. One such term is common area maintenance (CAM). This is the fee that tenants pay in commercial leases for areas that are common to all renters. 

What exactly are Common Area Maintenance (CAM) Charges?

There are numerous tenants in a commercial building and the shared areas need to be maintained regularly. A CAM (Common Area Maintenance) expense is a surplus expenditure, in addition to the base rent, paid jointly for the maintenance of the commonly owned premises like the lobbies, elevators, parking lot, laws, corridors, public bathrooms, and building security. 

They are fees paid by tenants to landlords to assist in covering expenditures related to overhead and operating costs for common areas. CAM rates are generally described in the lease agreement to dispel any uncertainty as to what they might entail. It is vital to completely comprehend these charges prior to signing a new lease. 

How is CAM Fee Computed?                                                                             

At the commencement of every year, the property manager projects common area maintenance chargesfor the property in its entirety or a part of the yearly budget. Then, that CAM estimate is split correspondingly across the tenants in the building. Your percentage of the charges is gauged by dividing your square footage by the gross leasable portion of the building. This total cost is computed into your monthly operating outlay, so it can be paid in little increments all through the year. 

Is CAM Fixed or Variable?

The CAM fees can either be ‘fixed’ or ‘variable’. The tenants need to get it incorporated in the lease agreement as to what type of common area maintenance charges they will have to pay – whether it is fixed or variable. If it is variable, then it must be explained on what factors the fees diverged. Then, it must also be included in the contract as to what percentage will the CAM fee be raised from one year to another. Tenants need to be aware if they are charged with ‘administrative fees’ apart from the CAM fees and what would be the separation of charges for the two. 

Drawbacks to Avoid 

Utmost care needs to be taken when consenting to the CAM charged by the tenant. It is highly recommended to scan through the financial documents of the landlord carefully to reach the accurate CAM fees or to clear out the anomalies in the CAM charges in real estate suggested. What encompasses common area maintenance charges is described roughly to pass on the operational expenses of the commercial building as much as possible to the tenants. 

Unless the lease agreement specifies what comes under the CAM charges, the tenants are counseled prior to signing the lease agreement to get a clear understanding from the landlord about the following:

  • Salaries of the supporting staff as well as the security guards in the common areas
  • Insurance expenditures of the building
  • Restoration and revamping of the building, parking lot, and any supplement to the building at a later stage such as solar panels of the rooftop and so forth. 
  • Electricity and water charges in the expenses in the common areas. 

Where can you find the CAM charges in the building which interests you?

At CRE Matrix, we have analyzed over 1 Lakh lease documents across the country and many of these contain CAM charges. CRE Matrix is the India’s most favorite authentic analytics platform that allows stakeholders from different industries analyze CAM charges and much more.

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Introducing the 2021 India Office CRE Matrix Quarterly Report: New Research on Key Players Gradually Returning to Office and its Impact on the Economy

Even though the pandemic had a huge impact on India’s rising office segment with occupiers cutting back on spaces, surprisingly, 2021 has showcased the return to normalcy; with essential occupiers going back to office. With the Omicron variant putting a break on the momentum in January 2022, there is immense faith that a powerful recovering economy and a strong advancement in India’s startup ecosystem are expected to move the growth trajectory upwards.

Our objective with the 2021 India Office CRE Matrix Quarterly Report is to share key insights into office demand, supply, rentals, vacancy of Grade A office spaces.

Key Takeaways from the 2021 India Office CRE Matrix Quarterly Report

As per the India Office Report Q4 CY’21, there has been an increased demand for office leasing, rise in office stock, stabilization of office vacancy, an increase in rentals, and continued job growth in the startups space.

The insights make it clear that even though a complete ‘Return to Office’ was not achieved, there were significant strides that were taken. Thanks to the rise in digitization across all sectors and the increase in vaccination numbers along with milder symptoms of new variant, there is hope that office demand in 2022 may revert back to pre-Covid levels.

  • Office leasing in India observed a magnificent recovery. The last quarter of 2021 witnessed 12.1 msf of office demand. Interestingly, this was nearly 80% of the demand viewed in Q4 2019 (pre-Covid). On a yearly basis, the demand rose to 30% as opposed to CY’20.
  • Industries who made the most demand on office leasing continued to be Tech (startups and IT/ITeS majors), BFSI as well as Co-working segments. They contributed nearly 58% to office demand in 2021 and 63% in the last quarter.
  • New deliveries in Q4 2021 stood at 1.6% of the total present office stock and the entire year of 2021 added 6.2% to existing office stock. Hyderabad and Bengaluru, with 10 million square feet apiece, delivered half of the total stock in 2021.
  • The office vacancy in India finished the year at 16.5% – approximately 210 basis points (bps) more when compared to the end of 2020. After witnessing nine quarters of increases, office vacancy is now steady and will probably reverse in 2022. Bengaluru and Chennai observed a decline in vacancy as opposed to Q3 2021. Overall, Chennai was the only city to see a drop in vacancy.
  • Grade A office spaces for rentals has seen a steady and gradual increase. Since market rents continue to more expensive than passing rents, we can safely say the pandemic-related concessions are behind us.
  • Job development in the Startups space is expected to continue growing and a complete ‘return to office’ is believed to happen by the end of Q2 2022, if not earlier.

Download the complete India Office Market Report Q4 for key insights and to understand how the economy is impacted thanks to players returning to office.

What CRE Matrix CEO Abhishek Kiran Gupta shared about the 2021 India Office CRE Matrix Quarterly Report

The world is dealing with the biggest public health crisis in recent history which poses immense challenges. While we do not expect it to disappear overnight, the economy has witnessed resurgence in the last year, particularly in the final quarter of 2021. There has never been a more significant time for the rise in demand for office leasing, especially after the kind of damage caused to the economy owing to the pandemic. Thanks to digitization across all sectors, we will most likely witness growth in office demand this year.”

About this Study

CRE Matrix has conducted this research based on authentic registered data collected across 6 major cities of India – MMR, NCR, Bengaluru, Hyderabad, Pune and Chennai. We have also done extensive research for occupancy and upcoming supply with the help of our large feet on street team. Also, our interactions with key stakeholders in the commercial real estate sector has also helped us in understanding the current scenario and the upcoming trends in this segment.

Download the complete 2021 India Office CRE Matrix Quarterly Report here.

For more CRE industry insights and data research do Contact us.

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A 10-Step Guide to Becoming a Superstar Commercial Real Estate Broker in India

The Indian real estate market is quite diverse yet dynamic and competitive in nature, especially for real estate brokers. To carve a niche of success, it is quite imperative for brokers to understand the changing promotional scenarios of the developers and the preferences of clients. Having a knack to innovate and being open to new marketing ideas helps one to stay relevant and afloat in the market.

If you are looking forward to becoming a superstar commercial real estate broker, here is a 10-step guide:

1.   Network to increase your net worth:

Even though commercial real estate broking is a traditional profession, if you want to tap more opportunities and convert them into success, networking is the key. Be in constant touch with your fellow real estate agents inquiring them about the latest market updates along with some tips and tricks.

If you do not specialize in a certain kind of segment, pass on the lead to them asking for the commission percentage that can be mutually agreed upon. Attend project launches and events, meet new people and stay in touch with your old clients who have deep pockets to invest in real estate properties.

2.   Embrace digital technology:

As we mentioned earlier, the market is evolving at a very fast pace and you have to march ahead to set your cash registers ringing. Take optimum advantage of digital technology by building and having a constant online presence on various platforms such as Facebook, Instagram, Google My Business and LinkedIn to reach directly to your target market.

Promote your brand along with the projects assigned at the reasonable cost involved with a digital presence.

3.   Be a consultant, not just an agent:

Rather than just weighing your prospect in commercial terms, go the extra mile and suggest to your client the property that will best suit his or her taste and requirement. This will help you build long term relationships and instill trust in the mind of your clients.

4.   Be transparent:

It is very crucial to be transparent in all your dealings with the developer as well as the client to close the deal in an efficient manner. You will have to be very crystal clear in all of your communication with all the parties involved to win their acute level of trust beating the competition in the market.

5.   Gain your expertise:

As we discussed earlier, the market of Indian real estate is quite diverse and versatile having a pie for everyone. But it is necessary for you to find your area of expertise, be it commercial or residential and further segregate it between luxury, mid-segment or affordable segments. This way, you will be renowned within the market and industry as a whole.

6.   Never forget your old clients:

Now, this is very crucial and important as your old clients as your best brand ambassadors. If you have catered for them well, they will surely recommend your name within their social circle making you earn more referrals.

7.   Gather market insights:

There are new project launches as well as new norms getting framed on a constant basis. It is significant to keep your eyes and ears open to find out what’s happening in and around your domain as developers and clients also look up to you as an industry expert.

8.   Ask for referrals:

Never shy away to ask for referrals from your existing clients. It will help you to network and grow your business within an environment that is ever competitive and dynamic in nature.

9.  Go an extra mile:

Always go the extra mile to offer excellent customer service to your clients. It can be gifting a small present on the occasion of their housewarming or helping with the contact numbers of plumbers and other technicians that will ease out their domestic chores.

10. Build a brilliant team:

With gradual growth and success, you will need more minds and hands to help you. Over a period of time, build a brilliant and efficient team that will help you accomplish your business objectives.

Even though the real estate brokerage business is traditional, it is evolving at a quick pace and is an integral part of the industry. If you think that it is the right match for your professional life, dive into it.

For more CRE industry insights and data research do Contact us.

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How Indian Family Offices Can Leverage Real Estate Analytics

What is a family office? It is a private wealth management service provided to ultra-high net worth investors to concentrate and control over family finances, legal issues, tax, and administration matters. It is believed to be an outsourced solution to regulate the financial and investment dealings of people or families. It operates to offer an optimal solution for developing, maintaining, and transferring family wealth. 

A family investment vehicle or family office is considered to be either a single-family office or a multi-family office. A single-family office backs one family but a multi-family office supports at least two families. Family Offices are growing in India as the country has new billionaires every year. There have been approximately 100 Family Offices that have come up in the past decade or so. 

For quite some time, real estate investing was propelled completely by speculation, educated guesses, and gut feeling. This is why investors kept repeating the same mistakes many times. While risk cannot be fully eradicated, real estate data analytics lets people make informed decisions about lucrative investments, thereby reducing the risk greatly. Today, real estate analytics can be used to increase wealth and enhance their competitive advantage. 

Let’s look at the ways Indian family offices can leverage real estate analytics:

Location

Data analytics provide significant insights into the existing trends in real estate investment. Locations can be evaluated based on factors like traffic congestions, school ratings, quality of life, and crime rates. Moreover, real estate data can aid in assessing how lucrative a location will be when it comes to occupancy prices, average rental income, and even the ROI of the area. 

Being able to zero in on the most optimal locations swiftly lets Indian family offices remain one step ahead of the competition in seeking rental properties. It also saves them the hassle of conducting prolonged searches via traditional research approaches. 

Pricing 

Whether a family office is interested in either selling or buying, price optimization is critical for building wealth in real estate. Indian family offices need to comprehend the market they are operating within to make the best possible pricing decisions. 

Quicker and More Precise Appraisals 

Acquiring an appraisal is very significant before purchasing or selling an investment property. Real estate data analytics offers a lot of details about sales for comparable properties in the same area. Investment property analysis makes it effortless for valuators to deliver price estimations swiftly to family offices. 

Commercial Trends 

Commercial real estate investment is generally more large-scale and complex as compared to residential property investment. Thus, investing profitably in the commercial property needs detailed and comprehensive real estate data analytics on consumer trends. It will help family offices make a more informed decision. 

Competition Analysis 

Real estate data analytics can help family offices assess the performance of their competitors who are in the real estate industry. Which firms are believed to be the most trustworthy? Who is selling the most? What consumer rating do they have? What kind of promotional techniques are they using? Family offices can also make use of data analytics for profits, sales figures, and customer reviews to evaluate their performance.

Tenant Targeting 

Using predictive real estate data analytics, family offices can help decide who their tenants will be in the following years. Data analysis makes it more effortless for family offices to target their marketing properly. 

Real estate markets are believed to be unstable, complex, and always in charge. Thus, Indian family offices would benefit from real estate data analytics to make intelligent investment selections and increase their return on investment. Thanks to data analysis, family offices can accurately assess where and when to invest, as well as decide the appropriate value of properties. 

For more CRE industry insights and data research do Contact us.

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Lease Rental Discounting in Commercial Real Estate Lending – What it is and Why it is Growing in India

The market for real estate is massive in India. This industry is believed to generate the second-highest employment, after the agriculture domain. It is also estimated that this industry will acquire more non-resident Indian (NRI) investment, both short-term as well as on a long-term basis. Among the metropolitan cities, Bengaluru is projected to be the most preferred property destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi, and Dehradun.

BKC as CBD

With a growing market, top banks in India are introducing Lease Rental Discounting (LRD) for commercial real estate firms in India. Let’s take a look at what LRD is and why it has become popular in India:

What is Lease Rental Discounting (LRD)?

Lease Rental Discounting (LRD) is a tool that is used to get loans sanctioned from banks by making use of rental receipts as collateral. The bank will inspect the long-term cash flow and offer the loan based on the same amount. The loan is then owed by the rents promised. 

Variables Considered by Bank When Offering Loan

To assess if you’re eligible for Lease Rental Discounting (LRD), the bank will examine numerous elements which comprise of:

• Worth of your property
• Your position to repay
• Other possessions you own
• Liabilities that could happen

How does Lease Rental Discounting (LRD) Run?

Lease Rental Discounting (LRD) loans function on the basis of rental properties being owed a fixed amount of rent. Tenants agree to a lease agreement with the owner of the property. This arrangement commands a regular payment, referred to as rent. The property owner can make use of rental receipts that are made for the lease period as collateral while requesting a loan. 

This procedure is streamlined as rent and is dispatched directly to the bank as EMI instead of reaching the owner. Every bank has its own condition when it comes to the amount of the loan against property. But, on average, you can acquire up to 70% of the property estimate in the loan amount. 

Why is it Growing in India?

The popularity for Lease Rental Discounting (LRD) has been rising in India because the price at which commercial property developers borrow loans making use of rental receipts from lease contracts as collateral – have gone as low as 6.5% below this decade due to the surplus liquidity with banks that faced issues in dispatching credit during the Covid-19 pandemic. 

Overall, the rates for Lease Rental Discounting (LRD) have dropped up to 200 bases points in the last 18-24 months. According to real estate fund managers and investment bankers of India, for the first time in several years, they have gone beneath the capitalization (cap) rate in the nation. 

Benefits of Lease Rental Discounting (LRD)

Expansion of Business

This property owner can go ahead and further invest in property by making use of the loan sanction from Lease Rental Discounting (LRD). 

Tax Benefits 

Tax deductions are available by possessing additional property. 

Balanced Cash Outflow

The borrower can gain from a balanced cash flow as EMIs can be repaid using the rent money payable by tenants. The money received in a loan offers additional revenue via investments. 

Low Capital Expenditure 

The capital acquired from the bank loan significantly aids in decreasing personal expenditure when spending on more businesses or properties. 

For more CRE industry insights and data research do Contact us.