Real Estate

Amidst cash crunch, real estate developers see opportunity in strata sales

Anil Urs Bengaluru | Updated on September 24, 2020 Published on September 24, 2020

Retail or individual investors are offered to own their office space

Amidst low residential real estate sales and freeze of funds by NBFCs and banks, developers have found opportunity for strata sale (sales to retail or individual investors) in ownership offices as part of commercial developments.

Ownership office is an investment offering to high net worth individuals (HNIs) and prospective companies to own their office space.

“Developers have resorted to strata sale in order to maintain their cash flows, many have been gradually listing anywhere between 25 per cent and 40 per cent of their office supply for strata sale,” Anuj Puri, Chairman, ANAROCK Property Consultants, told BusinessLine.

Early last year, realty major Prestige Estates announced its plan to resume strata sales of at least 25 per cent of its office assets to individual investors. Brigade Enterprises, too, has begun to pursue it.

“Ownership offices have always been attractive for investors as they are annuity income-yielding assets that appreciate year on year. The most popular sizes for ownership range from 2,500 square feet to 10,000 square feet. However, in some cases, it can be much higher,” said Nirupa Shankar, Executive Director, Brigade Enterprise.

“SMEs also prefer to buy into ownership offices for self-use rather than paying rent. To cater to this segment, we have close to 10 lakh square feet of office space, spread across three properties specially designed for ownership offices,” she added.

Rental yield

Puri said: “Given that residential (real estate) has yielded almost negligible returns over the last five to six years, many of the investors are turning their focus on commercial assets for higher returns. NRIs and HNIs form a bulk of these investors. Thus, given the viability, it’s turning to be a win-win deal for both investors and developers alike.

“For developers, it gives them the required liquidity to scale up their business, while for investors, it renders an opportunity to earn high returns. Not just that, it also helps developers to do away from the hassles of managing a property.”

According to Vishal Ahuja, India Head - Private Wealth Group, JLL, “Rental yield for an office asset varies. Broadly it could be 8-8.5 per cent. In a scenario where the developer’s team assists on the leasing side, there is an asset management fee charged by the developer. Hence, the net yield reduces accordingly.”

In terms of yield, ANAROCK research indicates that Grade A commercial properties generate 7-9 per cent yields while non-Grade A assets potentially deliver 9-10 per cent. The yield has reduced marginally for both sets amidst the pandemic.

“In fact, the Indian strata sale market is becoming increasingly attractive even for smaller investors. A well-chosen CRE (commercial real estate) play in a tier II city can begin at as low as ₹10 lakh. The upper limit for investing in Grade A assets in the metros is, of course, somewhere in the stratosphere,” explained Puri.

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Published on September 24, 2020
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