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All You Need To Know About Pre-leased Properties

 August 1, 2018  /  Comments Off on All You Need To Know About Pre-leased Properties

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Preleased or pre-rented properties indicate properties being rented out to a tenant, are up for sale in the market or are already sold. Once the property is sold out to another person, the lease will be transferred to the new owner with the transfer of property. The rent payments are paid to the new owner subsequently.

The pre-rented properties are now becoming a rage in the investment sector and there has been a substantial increase in such investment opportunities in India over the last 12-18 months. More people are wanting to get into this now as it’s evident from the increase in searches for pre leased property in Ghaziabad. Most of the big cities can be seen flooded with such fascinating investment options.

pre leased property in Ghaziabad

Investment into pre-leased Commercial Real Estate(CRE) is a low to medium risk investment with great returns during the period. As CRE investments generate income from the day one, the owner can enjoy debt-like returns during the asset holding period. These returns fall between the range of 8.5%-9.5% p.a. to begin with and moderately grow on account of rent escalations, which is typically 5% on a year or 15% after 3 years. These are steadied returns due to lease tenures usually in the range of 3-15 years.

On exit, the owner of the CRE would earn great potential valuation with capital appreciation being earned on the increased rent as well as on yield compression in an interest dipping scenario over the asset holding period. Hence the investors can earn a profit of around 16-18% p.a. returns from such an investment opportunity. These can be improved further in case some of the asset acquisitions can be structured through a combination of leverage through lease rental discounting available from banks and financial institutions and equity investment by the asset owner.

There are mainly two types of Pre-leased Properties: Commercial Pre-leased Properties and Residential Pre-leased Properties. The first type includes banks/ATMs, high street retail/showrooms, food joints /restaurants, office spaces, institutions(Schools/Colleges), hotels/ banquets, and industrial sheds/warehouses. The second one, as the name suggests constitutes the residential properties like flats, bungalows, etc.

Out of these, the pre-leased properties with a bank as a tenant are the most sought-after properties. Having a bank in the role of a tenant gives a sense of security in terms of long lease tenures and rent defaulter situations. Typically, banks sign a 9, or 12-year lease agreement with the landlord, with a 3 months rent security deposit(some banks have stopped putting down any security lately). Additionally, there could be a 3 year lock-in period with the agreement(again, depends from bank to bank and lease to lease). If you’re an investor, make sure you go for a pre leased property to banks in Ghaziabad and ensure a steady income returning on your investment.

With investment in completed constructions that can become future commercial assets, there are no risks in regards to the land, project approvals and constructions delays. Regulatory initiatives including GST, RERA, REITs as well as demonetization have caused higher transparency in order to boost the commercial space demand and therefore pre-leased properties make a compelling investment choice.

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