Understanding Commercial Real Estate: How Different from Housing Is It?

Both commercial real estate and housing properties followmulti-year cycles. However, it is seen that commercial real estate prices are comparativelyunpredictable. The pricechange in Commercial Office Space In Hyderabad real estate and housing is analogouswhen analysed over a period of time.Depending on the growth or decline in the economy, price appreciation over a short period (usually year to year) persists and vice versa in commercial properties.  


It is seen that commercial real estate markets have no limits to arbitrage as professional investors buy-sell these properties which they do not occupy. Here the rent is also clearly marked out and comparable among properties as they are income-producing properties. Raheja Mindspace Compared this to the housing segment, where there is no deep rental market for standalone single-family houses. In the case of multifamily units in apartment blocks, the rents are comparable if they especially happen to be located in the heart of the city.


The evaluation of properties shows that housing property sees lower variation in quality compared tooffice buildings or shopping malls. Also, it is easier to evaluate a single-family home than compared to commercial real estate. 

Risk and Rewards


Buying commercial or housing properties have different financial implications for the buyer andseller.

  • Tax benefits: Any property which is let out on a rental basis attracts tax.  Residential or commercial properties qualify for income under house property under the Indian Income Tax laws.  However, suppose a house property is taken on a home loan. In that case, they are entitled to tax exemptions under section 80C and section 24 of the Income Tax Act. 


  • Volatility: Housing properties have greater risk and volatility due to frequent change of tenants, lower returns, and higher maintenance costs. In contrast, commercial properties have more extended rental agreements, better prices because of the commercial nature of tenants, and a more stable income stream.


  • Liquidity:Commercial properties are considered more liquid when compared to the residential ones, though, as an asset, they are illiquid compared to, say, equity stocks or gold investments. The demand for commercial properties is more when it comes to better locations. The new REIT regulations make the investment in commercial properties more viable than residential ones.


Benefits and Drawbacks

  • Commercial properties give better yield on investment andhigher rental income compared to residential ones.
  • The commercial properties have a longer lease term – up to nine years compared to 36 months in residential properties.
  • Commercial property values remain stable over a longer period. Still, they need to be of specific sizes to be commercially viable.
  • Residential properties have alower entry cost, but theyalso yield lower rental income.
  • Easy loan facilities are available in the case of residential property.
  • The leasing agreement process of residential property is more straightforward compared tocommercial properties.
  • There is no minimum cap size for residential property. The advantage here is that investment in interiors makes it user-friendly and commands better pricing.


While there are many commonalities in both types of properties, one should also understand the advantages and disadvantages. Making an investment decision should depend on the budget, location, and the expected returns and tenure.