Industry analysts advise investing in the industrial market due to the current stagnation in the residential and commercial real estate segments. The main drivers of market stability in the industrial sector are long lease terms, substantial value appreciation, and promising rental yields.
The residential property market has endured difficult times over the past few years. Even retail and commercial facilities like shopping centres and malls haven’t shown much expansion. What potential earnings does the real estate sector still hold for you? To make money, experts advise investing in industrial property. Recent trends confirm that now is a wonderful time for real estate investors interested in investing in industrial property. Despite the market’s perceived lack of glamour compared to the residential and retail sectors, it guarantees positive returns and a host of benefits.
Industrial investment benefits investors with significant yields, says Balbir Singh Khalsa, National Director, Industrial and Asset Services Knight Frank (India) Pvt Ltd. While the residential market may yield returns of 3–4% YoY, industrial investment guarantees returns of 7–10% YoY. Additionally, flex buildings, factories, and other industrial units are in high demand for leasing because to the current boom in the industrial sector.
Industrial Property Types
- buildings for distribution and storage
- agricultural land
- Flex structures
- industrial units
- preserving frigid temperatures
Benefits of purchasing industrial property
Compared to residential and commercial properties, the rate of return on industrial investments is consistently greater. Industrial property typically has a yearly growth in value of 7–10%. Higher yields guarantee an early return on the investment, giving you more time to make money.
Long-term lease terms
Industrial real estate, such as land and factories, are leased for lengthy terms, up to 99 years. Even a factory’s shortest lease term of three years is advantageous to the owner.
Taxes must be paid
All significant financial outgoings are covered by the tenant, which is another significant benefit of industrial investment. The tenant is responsible for paying all taxes and fees, including the council rate, water rate, land tax, and management fee, maintaining a high revenue flow for the investor.
Investments in the industrial sector come with risks.
Finding a new tenant in the event that an industrial investment becomes unoccupied is one of the major hazards involved. In compared to residential properties, the process of finding a new renter is more difficult given the significant amount of security and lease money that the tenant must deposit.
Required approvals for industrial land use
In order to build an industrial facility on the purchased land, permission from the Industrial Development Corporation (IDC) is required. The lands are typically leased for 99 years. According to the IDC policy, an investor must pay an additional premium for using industrial land for commercial purposes, according to Khalsa from Knight Frank.
The Factories Act of 1948 is expected to be followed by all factories in India. A manufacturing facility is regarded as a factory if it employs 10 or more workers with electricity or 20 or more workers without electricity. Although different states have unique approval procedures, a manufacturer licence is a need.
The permissions differ between States depending on the manufacturing process proposed to be carried out on industrial land. For instance, the registration process may need additional paperwork and approvals, and it may take longer to get such approvals if hazardous materials and chemicals are involved.
Several pre-construction approvals must be obtained after purchasing the industrial land. Standard approvals include things like building plan and site approval, consent to create, having a power and water connection set up, and authorization for things like fires, boilers, and explosives, among others. They may also differ from state to state. Certain industries (such those dealing with medications and pharmaceuticals) might additionally need to register separately with the sectoral regulator.
Industrial investment has investment potential.
Real estate experts advise that now is a good time to invest in industrial properties because of the strong rental yields and enhanced appreciation of 5–20 percent on industrial land value. The business of warehousing and industrial sheds is open to investors. While industrial sheds are constructed for product manufacture, warehouses are constructed to store goods. Long lease terms are accepted by businesses, ensuring substantial rental returns.
How to become an industrial property owner
In essence, this involves locating an out-of-date or abandoned piece of industrial property and restoring it to conform to standards set by the market.
It is a profitable choice because you don’t have to put a lot of time or money into it before it starts making money.
Purchase at market price
If you are looking to purchase industrial land, you might come across a property that is for sale that is either leased or available for lease.
When purchasing something, make sure to investigate the property’s returns and its condition to make sure that just minor improvements are needed. This could guarantee returns right away.
Development of land
This is generally how buying a fresh parcel of industrial land works after sorting through several possibilities.
It is essential to have in-depth knowledge of how commercial zones are divided. For instance, certain commercial zones only permit operations related to warehousing and forbid any sort of manufacturing.
What impact does “Width of facing road” have on land value?
The width of the facing road is one of several elements that go into determining the value of the land. A wider plot of land facing the road will always fetch a greater price. The value of the land is also determined by its accessibility. For instance, pricing will always be on the lower end if the area is landlocked or the access road is too narrow.
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