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Pune’s real estate landscape is experiencing dynamic growth, making it a key area for both residential and commercial investment discussions. Over the past 5 years, the residential property market in Pune has exhibited notable growth. According to Knight Frank India, Pune recorded the highest sales in the last 10 years, with 41,780 residential units sold in 2022. By 2023, the market demonstrated a significant increase, with 14,309 units sold in just the first quarter. On the commercial front, Pune has demonstrated significant growth in the real estate market. In 2019, approximately 5.7 million square feet of commercial space was sold. By 2023, this figure had risen to 7.5 million square feet, as reported by Cushman & Wakefield. This growth represents a significant uptick in commercial property in Pune activity.
While investments in Pune’s commercial real estate continue to flourish with a 32% increase in office space absorption in 2023, considering both residential and commercial investments with a balanced perspective is crucial. The city presents a compelling case for potentially high returns in both residential and commercial properties, facilitated by informed and strategic decision-making.
A Advani Realty, known for its significant presence in the Pune real estate market, offers expertise in navigating these sectors. This blog aims to facilitate improved decision-making by conducting a comparative analysis grounded in various key factors..
Pune commercial properties typically offer a higher Return on Investment (ROI) compared to residential properties. For example, commercial investments can yield ROIs ranging from 6% to 12%, driven by higher rental incomes and longer lease agreements. In contrast, residential properties generally provide an ROI of 3% to 5%.
The elevated ROI in commercial real estate stems from factors such as the scalability of rentals and the potential for significant capital appreciation due to strategic locations attracting corporate tenants.
The stability of commercial property in Pune has generally been higher, as it is less likely to be affected by economic fluctuations and benefits from longer lease durations. However, the entry barriers are high, with significant initial capital and maintenance costs. Additionally, the risk of vacancy can be substantial if a major tenant exits, potentially affecting the income stream until a new tenant is secured.
In contrast, residential properties pose a lower entry risk and capital requirement, with easier tenant turnover processes. Despite this, residential properties may face frequent tenant changes, demanding active management, potentially leading to variable income periods.
The market of commercial property in Pune is buoyed by the expansion of IT and tech industries, which has created a high demand for office spaces. JLL reports indicate a 17% year-on-year growth in leasing activities, with IT- ITeS companies constituting over half of the demand. This sector’s growth prospects will potentially remain favorable, with ongoing infrastructure developments like IT parks and Special Economic Zones (SEZs) enhancing its attractiveness.
Residential demand is consistently supported by the city’s substantial educational and tech workforce. The presence of numerous universities, coupled with a growing number of IT firms, creates a continuous demand for residential units. The Knight Frank India report highlights a 10% increase in residential property values in Pune over the past year, driven by strong demand and investor confidence. This ensures that investing in residential properties in Pune positions you for future growth, providing substantial returns and long-term capital appreciation.
Commercial properties offer a notable advantage in terms of tax benefits, particularly the ability to claim full deduction on interest paid towards loans. This provision provides significant relief for investors, especially those with large investments where the interest payments are substantial. In contrast, the tax benefits for residential properties are more limited, with a maximum tax deduction limit of Rs. 2 lakh under Section 24 of the Income Tax Act.
From a legal perspective, commercial leases are typically longer-term, ranging from 3 to 5 years, and often include rent escalation clauses. These provisions create greater financial predictability and legal stability for property owners, reducing the need for regular renegotiations. However, residential leases are generally shorter, leading to more frequent tenant turnover and less legal complexity, but also are less certain in terms of increase in income.
Diversification is an important facet to any investment strategy, and commercial real estate offers a distinct advantage in this aspect. Investors can balance risk and enhance stability by including commercial properties in their portfolios. Commercial property tends to perform differently than other asset classes, particularly during economic fluctuations, which can make it a more resilient investment.
Residential real estate also provides diversification but is influenced more directly by consumer demand, population growth, and interest rates. Residential properties can be stable in the long term, as people always need a place to live, but they are also more susceptible to short-term changes in the housing market.
One of the fundamental advantages of owning commercial property is the ability to use it for your own business. If you own a commercial property, you can occupy the space when needed, saving on leasing costs and generating rental income in the meantime. This allows flexibility for future business expansion or changes.
In contrast, residential properties do not offer such an opportunity. They are primarily designed for living spaces rather than business use, resulting in limited scope for business expansion. Additionally, you can leverage residential and commercial properties for loans, providing another avenue for financial flexibility.
Commercial real estate can serve as a strong hedge against inflation. As inflation rises, so do property values and rental rates, allowing owners to adjust leases accordingly and maintain their income stream. This flexibility to revise rent often enables commercial investors to better cope with inflationary pressure.
Similarly, residential real estate also benefits from inflation, with property values appreciating over time. However, the ability to adjust rents may be more constrained, especially in regions governed by rent control policies or where the housing supply is abundant.
Well, these were some of the key factors to consider for commercial and residential property investments in Pune. We recommend looking into every facet carefully to make an informed decision.
A Advani Realty aims to help you navigate the thriving commercial real estate market of Pune. For around the past two decades, we have been dedicated to providing commercial properties that meet and exceed our customers’ expectations. Today, our offerings are not only sustainable and compact but also come equipped with high-end facilities, ensuring great returns on your investment.
By comprehensively understanding the aspects covered in the blog, investors can align their strategies with their financial goals and risk profiles and make informed decisions in the Pune real estate market. A Advani Realty prides itself on a deep understanding of the market dynamics, ensuring that every investment you make is positioned for optimal returns.
However, the balance between higher returns from commercial property in Pune and the relatively safer, more liquid investment in residential properties should be considered based on individual investment capacity and long-term objectives.
For more information or guidance, feel free to contact us. We are here to assist you with your investment journey!
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