Understanding Option Chain

Commercial Property vs Residential Property

In life we come across many catch-22 situations when it becomes difficult to select any 1 option. One such dilemma is investment decision related to Commercial Property vs Residential Property. 1st Real Estate  investment is always Residential as we feel more secure in our own home even though it is mortgaged :)

Commercial Property vs Residential Property dilemma arises when you start searching for 2nd Property. This itch starts immediately after 1st Home Loan Closure or if you have surplus funds for investment. Lets try to solve this puzzle of Commercial Property vs Residential Property.

1. Location:

The valuation of Commercial Property is highly dependent on Location. Though it is important for Residential Property also but Location is much more critical for Commercial property. Any wrong decision related to location can eat into your entire investment. If you finalize right location for commercial property then you have hit the gold mine. Between Commercial Property vs Residential Property, this point clearly favors Commercial Property i.e. Right Location can give much higher returns in Commercial property compared to Residential Property.

2. Return on Investment:

In terms of Return of Investment between Commercial Property vs Residential Property, Clear winner is Commercial property. Commercial Property has potential to deliver annual yield of 10%-15% whereas Residential Property cannot yield more then 4% under any circumstances.

3. Cost:

Residential Property is much cheaper compared to Commercial Property considering initial cost of investment. Secondly, you can avail maximum loan of only upto 60% on commercial property whereas on residential property, maximum loan of 80% can be availed. Thirdly, ROI on Commercial Property is normally 2%-4% higher then Rate of Interest on Residential property. Lastly, there are no tax benefits available on Loan for Commercial Property. Without any doubt, Residential Property has advantage on this parameter.

4. Risk Factor:

Commercial Property is high risk investment compared to residential property. The biggest risk carried by Commercial Property is of Stereotyping e.g. if any commercial area is stereotyped as market for clothes then you can’t do any other business in that area. Besides Stereotyping Commercial Property carry risk of economic slowdown, low demand or competition from other locations/builders. Residential property is relatively immune from these risk factors & clear winner on this point between Commercial Property vs Residential Property.

On overall basis, though there is no clear winner in this debate of Commercial Property vs Residential Property but in my personal opinion and from investment perspective, you should buy atleast 1 commercial property. Any wise investment in Commercial Property can be equivalent to wise investment in 3 Residential Properties. If you cannot buy Commercial Property at this stage due to high cost then it is advisable to keep investing in other avenues which can be liquidated in future for the purchase of Commercial Property.

Copyright © 2011-2013 Nitin Bhatia. All Rights Reserved.

Subscribe
Notify of
guest
29 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Vaibhav Parwat
Vaibhav Parwat
10 years ago

sir,
i have 3 questions
1. what is a commercial NA 44 plot.

2. i want to buy a plot which the dealer has registered as a commercial NA 44 plot.(Before the plots were farm land) the plots comes under the gram pancahyat. What are the documents that i need to check before buying the plot.because it will take nearly 10 to 15 years for the area to get developed.

3. and another question is can i build a house on a commercial plot and can i convert a commercial plot to a residential plot in future.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Vaibhav Parwat

It seems the land is in Maharashtra and converted from Agriculture to Non Agriculture use.

1. Commercial NA 44 plot means that land meant for Agriculture use is converted to NA (Non Agriculture) use for commercial purpose. This conversion is done under Section 44 of Maharashtra Land Revenue Code, 1966 thus these plots are called NA 44 plot. The plot should be collector approved before your purchase else you might need to pay penalty.

2. You need to check following documents

A. Original Application Copy with court fee stamp of rupees 5/-
B. Extract of V.F. 7/12
C. Copies of the all the relevant mutation entries (V.F. 6) pertaining to land in question
D. If record is not available in revenue office, a certificate from the Revenue Officer stating therein that the same is not available with him. (Talathi or Tahasildar as the case may be),
E. Extract of village form 8 A
F. Certified copies of the land map from the Taluka Inspector, Taluka Land Record Office
G. Copy of site plan and building plan (*if permission is asked for constructing building)
H. If the land is not abutting to any classified road and right of way over the boundaries of other survey number/Gat number is acquired, then extract of the relevant V.F.7/12 and V.F. 6
I. If the land in question is abutting EW, NH or SH, copy of the NOC from Highway Authorities or other appropriate authority,
J. NOC from concern Grampanchyat/Municipal councils,
K. If the N.A. permission is already granted and application is to be made for change of use of land, then copy of the NA order and sanctioned plan is to be attached,
L. If the land is attracting provisions of Bombay Tenancy and Agricultural Lands Act, 1948 then the Sale Permission received under section 43/63,
M. No dues certificate from farmer’s co-op society,
N. Certificate received from the Talathi stating therein that the land in the question is not under acquisition.
O. Any other documents such as NOC and clearance certificate etc, if the land attracts provisions of some other laws
P. If temporary permission is already granted for layout and application is made for final permission under the circumstances, below documents
Copy of temporary NA order permission
Plan prepared by survey department after subdivision of land in the plots, roads, open spaces and amenity places etc.
Architect’s plan
extract of V.F. 7/12
Copy of the mutation entry (V.F. 6) related to the temporary NA permission

Conversion is a complicated process..You may get the documents verified from local property lawyer

3. No, you cannot build house on commercial plot. You may convert to residential plot but you need to check whether it is permitted or not and you also need to pay conversion fees. Local lawyer can help in this regard.

Vaibhav Parwat
Vaibhav Parwat
10 years ago
Reply to  Nitin Bhatia

Thank you Sir for your valuable answer. This information will really help me a lot.
and yes Sir it is in Maharashtra.

Karan Sharma
Karan Sharma
9 years ago

Hi Sir, i have a very general question to ask but i need a brief technical reason for it.
Question is :: Why bank fund 60% for commercial property and 80 % in residential..

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Karan Sharma

In layman terms, commercial property is normally bought by investors therefore high risk. Secondly, the commercial property cash flow is always a concern to service the debt. Therefore LTV is low for commercial properties.

Manish Kumar
Manish Kumar
8 years ago

HI sir, I hold a commercial plot of 265 sq yards in Telangana, It is not much developed area so i want to build a house., how can i convert that commerical plot to residential… or can i build home without any conversion

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Manish Kumar

You should convert it to residential before you start any construction. You may approach Land department / local town planning authority for the same.

Manish Kumar
Manish Kumar
8 years ago
Reply to  Nitin Bhatia

can my only 1 plot can be converted to residential or the neighbour plots also ned to be done.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Manish Kumar

A single plot can be converted but if the entire area is commercial then permission for single plot is highly unlikely.

Bharat Mehta
Bharat Mehta
8 years ago

hi,

For Maharashtra Propertues

can you please explain what is temporary NA ?
who signs the temporary NA ?
and is it legal to construct on the basis of this ?
can the temporary NA get converted it actual NA and approx. time involved
incase the collector NA is not taken , what are the risk or chances of demolition?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Bharat Mehta

Temporary NA or Conditional NA are subject to fulfillment of certain conditions. You need to check what are these conditions. Secondly, Actual NA cannot be guaranteed based on temporary NA. It also depends on type of NA like NA 45, NA 44 etc.

Bharat Mehta
Bharat Mehta
8 years ago
Reply to  Nitin Bhatia

thanks , what is the difference in NA 45 and NA 44.

incase the collector NA is not taken , what are the risk or chances of demolition?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Bharat Mehta

NA means Non Agricultural Permission. It’s a complex process. This
permission is granted under various sections in Maharashtra i.e. Section
44, Section 45, Section 47(B) etc. NA 44 is basically clean permission
i.e. agricultural land can be used for non agricultural/residential/commercial
purpose. Whereas NA 45 or permission under section 45 is for
unauthorized non agricultural use. To convert NA 45 to NA 44, you need
to pay NA Assessment fees and fine.

If NA is not available then in layman terms, the structure is illegal.

°|<hU$H!यों का व्यपारी _/_
°|<hU$H!यों का व्यपारी _/_
8 years ago

Hi Nitin,
This article is really helpful.

Well, i need your advise

I have a property ( land with ready home). I would like to start a PG in two of my vacant rooms.

I would like to know if i need to convert my residential property to commercial property?

What are the other legal formalities required to start a PG.

Thanks in advance,

Nitin Bhatia
Nitin Bhatia
8 years ago

It depends on city to city. At macro level, you need to convert your electricity and water meter to commercial. Also property tax will be charged for commercial property. You might need approval/permission from local development authority.

°|<hU$H!यों का व्यपारी _/_
°|<hU$H!यों का व्यपारी _/_
8 years ago
Reply to  Nitin Bhatia

Thank you so much. That was helpful.

yadav
yadav
8 years ago

hi Nitin

I am investing on house which is NA 47(B) in aurangabad maharashtra.
I am unable to understand what is NA 47(B)?
Can you please guide?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  yadav

It is complex subject. When the agricultural land is used for non-agricultural purpose then you need permission of collector. This permission is granted under various sections and NA 47B is one such section. It is provisional order and not the final one.

Bimal Shah
Bimal Shah
8 years ago

Sir,

I bought a 2bhk flat in ahmedabad in outskirt location at price Rs. 21 lacs in 2010. its current value is 33-35 Lacs. presently its rented at rent of rs. 1lac p.a. Recently i purchased a larger 2bhk house for my future staying purpose (after 10 yrs) at litle higher price of rs. 52 lacs in ahnedabad. My question is what shiukd i do with my 1st house as now it became only for investment reason.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Bimal Shah

Average rental yield is around 3% only. You should consider the property appreciation also. Considering current price of 35L, your annual return/appreciation is around 8.88%. You can add rental yield of 3%. Therefore net return is around 11.88%. It is decent in my opinion. I am assuming that you have not availed home loan to purchase this property.

Though the decision to sell this property is your personal decision. Personally i will not sell the property for just 0.5% additional rental yield and spending additional 15L.

Padmakar Patil
Padmakar Patil
7 years ago

Hello Sir,

I have purchased 2 plots ( NA-45) in aurangabad in 2008, I want to start construction on it.

But i came to know that bank doesnt approve loan against NA-45.
Can u please suggest what can be the right way.

Regards..
Manjusha Patil
9850145556

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Padmakar Patil

NA means Non Agricultural Permission. It’s a complex process. This permission is granted under various sections in Maharashtra i.e. Section 44, Section 45, Section 47(B) etc. NA 44 is basically clean permission i.e. agricultural land can be used for non agricultural/residential purpose. Whereas NA 45 is for unauthorized non agricultural use. To convert NA 45 to NA 44, you need to pay NA Assessment fees and fine. Fine is usually 40 times the Assessment fees. Besides fine, you also need to get NOC from local town planning authority and other authorities within 6 months.

After NA 45 is converted to NA 44, you will get loan and start construction.

dinesh
dinesh
7 years ago

Hello Sir,
I purchased a residential flat in Hyderabad. The project faces a 30 mt wide road and my flat is on road facing side. Actually the builder wanted to sell the road facing block as commercial/shopping complex, but due to a road expansion proposal he was not able to plan the same and instead he has come up with residential units after leaving sufficient setback. Now I am planning to market this flat as commercial unit in future (5+ years down the lane) either by leasing or selling. We haven’t formed any resident (self :) )welfare association yet. I would like to know the steps I can take now while we frame our by laws so that there would be no objection from my association in future.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  dinesh

You need to check whether your unit is residential or commercial in the approved layout plan. If it is residential then you cannot convert it to commercial unilaterally.

Tejas Pande
Tejas Pande
7 years ago

Hello sir,

I want to invest in commercial property, a shop in Ghodbunder, Thane. The shop is a part of residential complex which is NOT very well known for its construction quality hence the rate of price rise is low compared to others in vicinity. But I don’t mind the slow price rise since that is the only place I can afford a commercial property in that vicinity.

The shop is located facing a small road which is being converted into a 120ft road, in next couple of years. Is it smart to invest such a building which is well known for its BAD construction quality. Can the shop stay immune to this factor?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Tejas Pande

It is difficult to comment as it depends on what you want to do with this shop, how many walk ins you are expecting etc. Secondly, if road is extended then you need to check on which side the encroachment is etc.

Pharmacist Mangesh M Antarkar
Pharmacist Mangesh M Antarkar
7 years ago

Res. sir , dhfl provided me home loan for flat constructed on a na 47 b plot . Now i want to transfer this loan from any other bank . SBI or other banks are not interested for such transfer .
please guide me

Nitin Bhatia
Nitin Bhatia
7 years ago

You have not mentioned the reason why you would like to transfer the loan.

Amit Mahimkar
Amit Mahimkar
7 years ago

Respected SIr,

Generally, I would like to know, could a self owned commercial premises (Shop) in a co-opreative Housing Society in Mumbai, be legally utilized, half for commercial/business of (all types of electrical appliance repairing & product selling) and half premises of the same being utilized by the shop owners family as residential premises?

Kindly guide, also if not, what could be the legal problems being faced by the owner?

Regards
Amit Mahimkar

Shopping Cart
Scroll to Top