Real Estate Investment Real Estate Investing Guide for Beginners in Newca | Page 2

Real estate as an asset class created wealth but it has its own complexities in terms of higher
ticket sizes, liquidity issues, transparency and maintenance, among others. Compared to the
residential market which has been in a tough phase in the last four years, commercial real
estate offers better appreciation and rental yields, but it requires financial abilities, sufficient
market knowledge and longer holding capacity.
Options available to participate in commercial real estate can be shops, offices, land parcels,
private equity funds and real estate investment trust (Reits). Among these options, Reit
appears to be the best for retail investors as it addresses the challenge of dealing with a large
ticket size as well as transparency. Owning your own shop, office or land requires higher ticket
sizes as well as proper due diligence in terms of legal and future market outlook which is
difficult to do at the retail level.
Before you succumb to the lure of higher rentals in commercial real estate, keep in mind a
few factors.
What is your overall allocation to physical assets as compared to financial assets? The former
certainly have the disadvantage of illiquidity—use physical assets to meet goals that are at
least three years away, so you are not forced into a distress sale to meet your needs. Have
you factored in non-occupancy? The rental returns are higher when they are paid; do you
have the financial muscle to hold on, when the tenant vacates the premises? Operationally,
do you have a system in place to locate new tenants and negotiate terms? Even if you have
all the right boxes ticked, how will you protect against the risk of a new centre coming up
nearby which has all the facilities of the existing property with a few additional amenities
which change the equation completely?
You could go ahead with your investment in commercial real estate after taking into account
these factors (and more).
Against a prolonged stillness in the residential real estate market, the commercial assets have
been performing well in the past couple of years. It’s becoming popular among not just
institutional and HNI investors, but also increasingly among retail investors. Commercial