A quick look into commercial and residential plots
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A quick look into commercial and residential plots

By Harshvardhan Sharan·July 20th, 2022

The post-pandemic period has raised a question about investment classes for many people. With increasing costs and a fluctuating economy, people are looking out for long-term investments like real estate and equity. However, while intending to invest in real estate, people always face the dilemma of investing in land or buying a property.

Well, when it comes to choosing between land or property, we would say that your choice of investment depends upon your financial health, budget, stability, and purpose of investment. Each investment class has its own set of benefits and gives returns accordingly. In the previous blogs, we have discussed in-depth the commercial properties. This article will explain the residential and commercial plots and what they have to offer.

A brief introduction to residential and commercial plots:

Commercial plots- These plots are generally set in urban spaces and are used by for-profit businesses for commercial use. These spaces are acquired by malls, retail shops, office spaces, big and small businesses, movie theatres, etc.

Residential plots- These plots are used for housing purposes. These are the most sought-after plots and are popular traditional real estate investments. These plots are used to build residential houses, bungalows, apartments, villas, etc.

What all you can do on these plots?

Commercial land can be used for doing business in various sectors. The following are some of the things that you can do on commercial plots-

a) Build warehouse- Warehousing in India has attracted many global and domestic institutional investors. According to the Economic Times, the country’s industrial and warehousing sector has reached Rs. 25000+ crores since 2017. Warehousing is the most gainful business you can opt for. Warehouses need very less time and cost of construction. You can lease your warehouse or own it and diversify your portfolio going forward.

b) Retail Malls- Food and clothes are a basic necessity. If your commercial plot is in a prime location, then maybe you can leverage it by constructing shopping malls or retail shops and start a full-fledged profit-generating business. Malls are a secure investment option that provides a steady income flow. You can lease out your space to big brands like Reliance, BigBazaar, Zudio, etc., and earn high rental income from them.

c) Office space- Owning an office space is the best investment strategy. The office space market is witnessing a growth trend over the past few quarters despite the impact of the Covid-19 pandemic. There is no better time to invest in office space than now, with developers planning new projects, Real Estate Investment Trusts (REITs) promising to transform the sector, and big-ticket corporate purchases expected. Office spaces give the highest ROI of 8%-12% and a rental yield of 6%-8%.

d) Residential use - Yes! You can transfer your commercial property to a residential one for building housing projects. This is the best investment strategy if your commercial plot is in the right area. Usually, commercial plots are in prime locations and are well-equipped with resources. Hence, the conversion of these areas into residential zones can bring huge demand to your investment, giving you high rentals (If you lease out your property), or ROI(If you build residential projects and sell the units).

Now, let’s move on to the residential plots. Residential plot investments give you the flexibility to build any residential property of your choice. Here are a few of them.

a) Build row houses, bungalows, and villas- If your plot is spread over a significantly spacious area, then you can opt to build luxury housing like these. These apartments are high maintenance with all the amenities. These types of residential structures are built a little far from the urban area with an intention to relax and disconnect from busy schedules. If you are a weekend person, you can consider this investment option.

b) Builder floor apartments- The option of building builder floor apartments became increasingly popular with mid-sized square plot types. Unlike complex, shared apartments and individual housing, builder floor apartments provide more freedom and lower maintenance costs. The plot size is more extensive than separate accommodation but is incomparable to the apartment complex types of plots.

c) Apartments and complexes- If your residential plot is spread over a sprawling area, you can build an apartment or a complex which occupies multiple families. These types of investments are profitable however, these need a lot of funds to invest in. So, if you are looking forward to a long-term investment horizon and have a big-size investment appetite, you can use your residential plot investment to build complexes too!

With this, here are some of the benefits of investing in residential and commercial plots-

Investing in plots has always been a pinch more beneficial than ready properties. Here are some of their advantages-

  • Efficiency: As compared to the ready properties, plots offer a high-efficiency rate. You might wonder what an efficiency rate is, right? So, here you go- Let’s say an office building contains 200,000 square feet of space. Of this amount, 10,000 square feet are taken up by elevators and other physical plant equipment. Another 5,000 square feet are taken up by the sales and management office. Restrooms and hallways occupy 30,000 square feet. The lobby is 5,000 square feet. The total space available for lease is 150,000 square feet. The efficiency ratio is 150,000:200,000, or 75%.
  • High rents: Unlike ready residential or commercial property investments, plots to offer high rental income. Especially if you build a commercial property on your commercial land, you get a rental yield of up to 6%-8% annually with an ROI of 15%.
  • Built to suit: Commercial and residential plots provide flexibility of usage. For example, you can build any residential structure of any shape, size, and architecture that suits your favorability. Likewise, you can build any commercial property on your commercial plot according to your wish! You can renovate, add or even deduct certain aspects of your property without anyone’s permission and will.
  • No/low maintenance: Tenants usually take care of repairs and maintenance on their own in commercial or industrial properties, keeping attractive storefronts for attracting business on their own terms. Industrial tenants prefer minimal interference from the landowner in their business, which reduces the landowner's maintenance expenses significantly.
  • Tax benefit - Plot investments have tax benefits in store for you! Let’s say that your annual income is Rs.10,00,000. It's obvious that your TDS will be deducted. But if you show that you have borrowed a loan for your commercial plot/residential plot, then you save up to Rs.1.5 lakhs on taxes.

What should you keep in mind before buying a plot?

1) Location- If you are being a commercial plot for your own business, you need to choose a location that is commutable for the employees, convenient for customers, and not too far from your suppliers. Investing in a commercial plot that is at prime spots can help you a lot to attract quality tenants. Even if it is a residential plot, basic amenities like hospitals, schools, transportation, etc. should be in close proximity.

2) Market value- In many cases, people buy a property with the intention of selling it later, but end up stuck with it when the value doesn't increase as anticipated. It is entirely preventable if you do a market analysis before purchasing the land. You can then make informed decisions about your property based on its market value. Although you may not get the cheapest parcel of land this way, you can save yourself quite a bit of heartache by considering the needs of future buyers.

3) Acknowledge the risk factor- Before buying a land, consider the risk factors like background history of the property, check for criminal records, clear titles, if the land is truly commercial/residential, etc.

4) Thoroughly research the market- Just because the plot is surrounded by greenery doesn’t mean that the plot is a lucrative investment and better than other plots out there! It is a long-term investment and you don't want to end up losing out on a better opportunity out there right? Hence, research the market and grab the best property without future regrets!

With this, we wrap up this article. Plot investments are still a popular investment class and you can really make tremendous profits if you invest with an appropriate decision and advice! Consider the above benefits and measures before investing in commercial or residential plots.

Wait! Before going, don’t forget to check out our best residential and commercial plots.

Author avatar
Harshvardhan SharanInvestment Associate

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