India’s commercial realty supply expected to continue at fast pace

V Nagarajan, Gulf Today

India’s commercial real estate supply will continue gain momentum in 2019 on the back of vastly increased interest from private equity (PE) players who are actively pumping in funds into this segment.

As per Anarock data, the commercial segment saw a total private equity (PE) inflow of nearly $2.8 billion in 2018, up from $2.20 billion in 2017.

On analysis of PE trends over the last few years, the commercial segment saw total PE inflows of nearly $7.4 billion between 2015 and 2018. In the same period, the residential sector drew just $2.9 billion.

This clearly reflects the interest of PE players — both global and domestic.

The major differences between commercial and residential real estate in terms of performance — and indeed as investment asset classes — are quite apparent. Certainly, private equity investors are quite certain of which segment they are more comfortable with in the current Indian market scenario.

The commercial property absorption was 39.6 million sqft in 2018 compared to 33.35 million sqft in 2017 and 31.9 million sqft in 2016. Office rentals remained steady in 2018, with a marginal rise of 3 per cent over the previous year.

More importantly, however, the average vacancy levels reduced from 15.4 per cent in 2016 to nearly 14.47 per cent in 2018. Not surprisingly, vacancy was the least in Bangalore with mere 3.4 per cent in 2018.

Various Government-driven policies including ease of doing business in India are attracting both Indian and global companies, squarely benefiting commercial real estate. Big-bang boosters like the start-up revolution and the Make in India and Smart Cities missions have created a very lucrative environment for businesses to work and expand in India.

The demand for high-quality office spaces in India has never been higher. The residential sector, on the other hand, continues to struggle with problems that the commercial segment does not share.

Q: Can I gift the inherited property to an NRI or sell the property and repatriate the sale proceeds to Gulf? What are the rules governing the inherited property? Please advise. Demello, Sharjah.
You can either gift away the inherited property or sell the same and remit the money outside India. There are certain restrictions on gifting of the property by an NRI. You can gift the inherited property, only to a person who is resident in India or an NRI or PIO.

You cannot gift the property to a person who is neither of these. In case of gift to a non-relative, the recipient will have to pay tax on the market value of the property that is received as a gift.

Q:Our family has real estate assets in the form of apartments and land in Mumbai and Delhi. We are planning to consolidate the assets by selling some and reinvesting in other categories. For capital gains, how to ensure minimising tax liability? Shishir, Dubai.
There is a difference while reinvesting capital gains in other categories of real estate especially if you wish to minimise tax liability. If you sell your residential property, you are required to make investment only of the capital gains amount so as to save your capital gains.

However, if you sell a plot of land in India, in which case in order to save long-term capital gains, you are required to invest the entire sale consideration. You can save tax on cost inflation index while computing the long-term capital gains.

This benefit is available in respect of long-term capital gains and not in respect of short-term capital gains.

You can also invest upto Rs 5 million in capital gains bonds so as to save your capital gains. Presently there are two types of bonds available in the market namely the bonds of NHAI and REC.

Q: I have let out my villa for rent to a corporate house in Mumbai. During last year, lease rentals were received erratically and for some months nothing has been received from the lessee.
While computing rental income, is tax payable on the agreement value or actual rentals received during the year? Kiran Das, Dubai  If the asset is rented out but the rental income becomes unrealizable due to non-payment by the tenant as in your case, there would be no income-tax liability. This is because under the Income-tax law, tax is payable only in respect of rent actually received by the lessor.