Are society shops worth the investment?

 High cost of real estate kills the very purpose of setting up commercial units within housing society premises.

In a housing society, the convenience shops are a boon. However, what may seem like a convenience for a large number of residents of the high-rise buildings, is more often bad business sense for investors. Many dysfunctional commercial units within housing societies, whether for reasons of high rentals or cluttered competition, are tell-tale signs of that.

Investors often point out that the society shops are not worth the investment due to high real estate costs. In many cases, the complaints are justified. How could a developer sell commercial units at the rate of Rs 18,000 per sq ft in an affordable housing project, where the average residential units cost Rs 3,500 per sq ft? In such cases it may take an indefinite period for the investors to break-even.

Take the case of Greater Noida West, a residential market with no less than 3.5 lakh upcoming apartments. Every housing society has shops and the over-supply is huge. Rajesh Singh bought two shops at Rs 50 lakhs each, with the expectations of earning monthly rentals of Rs 50,000 from each. This expectation of 12% rental returns could not be termed as unreasonable. However, given that only around 1.5 lakh apartments in the micro-market are ready for occupancy, there seems to be over-supply. All that he is getting is 6% rental returns with no scope of capital appreciation. Off and on, tenants keep leaving the shops with complaints of business losses, he says.

Advantages of society shops

• Convenience to residents

• Quick home delivery

• No uncertainty with online delivery timings

• Saves time and fuel

Disadvantages of society shops

• High real estate cost

• Difficult to achieve break-even, with daily-use items

• Vast online choices versus limited inventory with society shops

• Competing businesses

What is the purpose of society shops?

The main purpose of the society shops is to offer convenience to the residents. They are conceptualised with the perspective that the residents need not step out to get their daily needs. At present, the commercial FAR (floor area ratio) is set at 2 to 5, depending on the size of the society.

However, the intent seems to be that of investment and returns and not the need to be served. No developer has, thus far, offered the society shops on the lease model. Without exception, all belong to the outright sale model.

The moot point for the investors is whether the society shops are worth the price, considering the high real estate cost of doing business per sq ft. Should the price of society shops be capped, proportionate to residential selling prices?

Society shops: What is an ideal price?

Aditya Kushwaha, CEO and director, Axis Ecorp, disagrees with the concept of price ceiling, pointing out that there is limited inventory available for society shops. If there is a price cap on these shops, they make little business sense from a developer’s perspective. Since these shops are a lucrative proposition, these enjoy a greater demand. “A developer has to allocate resources, efforts and inventory into establishing these shops at convenient spots. We believe that market forces are the best judge, to determine the price based on the location, size and footfall. Moreover, there is no stipulated body that can enforce a capping or make sure that the price capping is being adhered to,” says Kushwaha.

Vinit Dungarwal, director at AMs Project Consultants, believes price is a critical factor but not the only governing factor. For commercial real estate projects, location is another important consideration. Society shops have a location advantage as they are strategically located inside the housing complex and enjoy greater footfalls. The biggest USP for these shops is the convenience that they offer to the residents.

“Most of these shops come at a premium pricing. Whether these shops are worth the price, depends on the demand and footfall that they can generate. It is also dependent on how competent the manager is, in managing the stocks and keeping the goods moving. There is a need to cap the prices of society shops, in proportion to the place and footfalls they can attract. Also, since these shops are designed to suit the needs of the residents, it is unfair to classify them under the commercial segment. There would be greater demand for these convenience shops if they are priced better,” says Dungarwal.

Factors that could make society shops lucrative for investors

• Price capping of real estate

• Lease model by developers in large format townships

• Long-term leasing

• Tax benefits like residential units

• Lower maintenance and upkeep cost

• Loading that is similar to residential units

Factors that could make society shops lucrative for investors

• Price capping of real estate

• Lease model by developers in large format townships

• Long-term leasing

• Tax benefits like residential units

• Lower maintenance and upkeep cost

• Loading that is similar to residential units

Should you invest in society shops?

Having larger shopping complexes in the residential areas often adds to the issues. There could be issues pertaining to noise, security and privacy. However, from an investor’s point of view, one has to look at the following metrics before making a purchase commitment:

• First and foremost, is whether the catchment area is large enough for shops to do business. Do the society shops can also cater to the neighbourhood societies?

• An investor should also assess the potential of society shops in competition with the local kirana shops, as well as any high street or malls within walking distance.

• One should also consider the price of the society shop vis-à-vis the segment of the housing. The purchasing power of the residents is critical for the shops to succeed in the housing societies. Reasonable rental potential is also subject to the investment versus return.

• Fourth consideration is the future development potential of the area. A developing area has better chances of capital appreciation than a saturated micro-market.

• Finally, the investor must also check the loading percentage. The developers more often than not go up to 50% loading with society shops, as compared to 25%-35% loading on the residential units.

Get More Information About Property Agent in Thane For More Details Visit Propertythane.com And Email Us On info@propertythane.com

Guide to Office Building Classification

 Grade A buildings are those that enjoy a premium over the average rent prevailing in the area. Here’s all you need to know about Office Building Classification.

One of the crucial steps to take before investing in real estate is to do a thorough real estate market research of the city where you are planning to buy a property. It is far easy to study market trends, compare sale prices, and gain an overall perspective before deciding on what works best for you in today’s digital age. It allows you to make error-free decisions and gauge an understanding of when, how and where to invest. Deciding on the right city is also an important decision. Everything comes into interplay here – the economic and infrastructural developments in the region, road, highway and expressway connectivity, and the property’s strategic location.

Grade A

Grade A buildings are those that enjoy a premium over the average rent prevailing in the area where they are located because they a usually newly built and have all the requisite infrastructure. These buildings are the best looking buildings of the city and have very good amenities. They conform to all the legal requirements of the zone of the locality where they are constructed and also have features like fire prevention system, fire management system, earthquake resistant structures etc.

Grade A commercial property spaces have very good security features and a tenant can be free from any headache that may arise in day to day operations. These buildings are professionally managed and have adequate parking for all the corporate tenants, their employees and their guests who may be visiting from time to time. In the Western Countries like USA or UK, these buildings usually have a size in excess of 2 lakh square feet. However, in India these buildings can be smaller of the size of 1 lakh square feet or so.

Grade A commercial buildings get famous corporates as tenants and often compete among each other to house the biggest of the companies. These buildings also have start of the art HVAC (Heating Ventilation, Air Conditioning), very safe elevators and outstanding concierge services. The utilities like water and electricity is extremely efficient. The architecture of such buildings like Grade A office spaces is also noteworthy, conforming to latest design efficiency standards and adequate ventilation and natural lighting provisions. These buildings often have cafeteria, food court, restaurants, ATMs, coffee shops etc. They are usually found in central business districts and in global cities like London or New York, they might even have large open spaces or greenery or some kind of landscaping. However, In Mumbai or Delhi, Garde A buildings usually do not have much of landscaping or greenery but conform to other standards.

Grade B

These buildings are not as centrally located and are usually not architectural marvels but still have professional management and decent location. These buildings have elevators that do the job but are not start-of-the-art. These buildings may compromise a bit on the shine and glitzy part. They are usually older than Grade A buildings and almost always have had tenants earlier that have now moved out. These buildings do not compete amongst each other to get Fortune 500 companies as tenants and the water and electricity systems are neither faultless nor super-efficient. They may not even have modern sophistication like earthquake resistant structures and waste recycling units. These buildings thus command rent which is average rent of the area where they are located. These buildings may also compromise on the parking area, having just enough for the employees of the corporate tenants and not for their guests. There are minor repairs required from time to time but overall construction is satisfactory. The security arrangement is adequate but not hi-tech. The building would have middle sized companies as tenants and there may or may not be café, restaurants and food court.

Grade C

Grade C Buildings would be compromising on several factors like parking and security. There will be no café or restaurant inside the premises. There would be frequent repair work but not to the extent that the building will not be inhabitable at all. The parking will be uncovered and usually not enough to accommodate vehicles of all the employees of the corporate tenant. For a tenant that gets a lot of quests or visitors, Grade C building may not be ideal because of parking and other issues. These buildings are usually the oldest building of towns and are as far away from architectural marvels as they can be. There will be no lobby area and may not even have elevators in the Indian context (Delhi Mumbai, Kolkata and Chennai). However, in Western countries, even Grade C buildings will have a lobby and elevators. The rents of these buildings are at the lowest end of the bracket. Grade C buildings are suitable for back-end operations of companies where there is little or no client interaction required. In certain Grade C buildings in Delhi, Mumbai and Kolkata, the requite permits from the fire departments may not be there at all.

These are just general descriptions and are somewhat subjective. You must look at your immediate requirements and suitability. Sometimes Grade B or Grade C buildings are the need of the hour for a businessman or a company and stretching to occupy a Grade A will not make sense otherwise it will start affecting the bottomline of the company.

Get More Information About Property Agent in Thane For More Details Visit Propertythane.com And Email Us On info@propertythane.com

How to effectively reduce real estate investment risks

  April 2022

The real estate sector is one of the largest markets and most prominent contributors to India’s GDP, with many people wanting to invest in it. But like any other industry, investment in real estate should be preceded by a holistic, practical, and risk assessment approach to maximise benefits and minimise losses. The real estate sector has been attributed as one of the top investment picks in India in recent studies as it has long-term advantages, and its craze will never die down.

One of the crucial steps to take before investing in real estate is to do a thorough real estate market research of the city where you are planning to buy a property. It is far easy to study market trends, compare sale prices, and gain an overall perspective before deciding on what works best for you in today’s digital age. It allows you to make error-free decisions and gauge an understanding of when, how and where to invest. Deciding on the right city is also an important decision. Everything comes into interplay here – the economic and infrastructural developments in the region, road, highway and expressway connectivity, and the property’s strategic location.

Before finalising any property, check whether the real estate offering has all the relevant approvals such as ownership certificate, building layout approval, occupancy certificate, non-agricultural permission, various NOCs, NHAI permission, energy, water & firefighting department approval. To make an informed decision, it is necessary for you to oversee all the veracity of the documents and safeguard yourself from acts of knavery and unscrupulous activities. The RERA registration should also be checked to ensure the sanctity of the project and whether it complies with the guidelines.

The real estate developer or builder is the backbone of any project. So, before investing, track the past record of the builder, how many projects he has delivered, the average delivery time, and the construction quality of the offerings. It helps you understand the builder’s brand and the solid attributes and weaknesses that you should be aware of beforehand.

Studying the past record of the builder also involves checking his cash flow & land bank. It reassures the buyers of the builder’s net worth and also validates his reputation as a brand, enhancing the trust factor between the builder and the investor.

While going for investment in real estate, it is of vital importance to be rational & not fall into the vicious trap of lucrative schemes which are unviable and non-practical. It is often projected to belie customers and inveigle them into making non-profitable, one-sided and regretful investments. Therefore, buyers are often advised to practise caution and use a logical approach and take an expert’s help, if needed, in such cases.

Exploring micro-market possibilities is also an important task. Buying properties in locations that are nearby major roads, metro stations or have an established connection with public transportation like buses and autos promotes safer and easier travel. Buyers should also ascertain whether there are schools, shopping complexes, and hospitals in the vicinity of the property. It improves the living experience and makes fundamental necessities easily accessible to them.

Buyers should also overlook the various stages of the project and the state of the groundwork. It shows their interest and awareness of the subject and asks questions if there are any delays or loopholes. It increases the developer’s accountability and makes them answerable to the buyers.

These are ways to reduce the real estate investment risks and make a profit-worthy investment. You have to be confidently aware of the market analysis, and research and confidence stem from knowledge.

Get More Information About Property Agent in Thane For More Details Visit Propertythane.com And Email Us On info@propertythane.com