The pandemic has forced many businesses to adopt work from home for their employees, which made people rethink their rental obligations towards commercial office spaces and other investments.
On multiple occasions, tenants who were unable to pay the rent left their landlords in jeopardy. This is making them restructure their leases.
As commercial tenants opt for negotiating their leases, lease restructuring ideas are becoming innovative to ensure profit for both parties.
What is a Commercial Lease?
A commercial lease is a formal renting agreement of a building, property, or SVP for commercial or business use. There are several restructuring options to retain tenants and attract new ones.
Some of the creative approaches taken by developers include:
- Rent abatement
It wouldn’t be practical or even feasible for landlords to reduce their rents. The solution to this is giving respites and also going so far as offering a longer initial rent-free period to their tenants.
- Blend or extend
In cases where tenants have multiple leases with the same landlord, they can easily blend rents and lengthen the lock-ins to reach mutually beneficial terms.
- Burning the security deposits
Security deposit is any money that the landlord takes from the tenant other than the advance payment of rent. The security deposit can be mutually reduced at the start of leasing itself.
- Rent escalation on warm-shell
As the value of furniture and fixtures is depreciating in nature, it is recognized that escalations are better paid on warm shells and not on fitted-out spaces.
Why is restructuring important?
- Long leases
Restructuring helps landlords boost their property value as it helps retain tenants for longer leases. This way landlords don’t have to find new tenants again and again. This works well for both parties as it helps landlords avoid vacancies and tenants don’t have to look for spaces again and again.
- Stability and flexibility for both parties
It provides more flexibility to both parties to reach terms that are bilaterally beneficial. Also, long leases promise relative stability.
As these commercial real estate restructuring options have turned out great for both parties we can see restructuring going a long way.
Residential real estate trends in 2021 might witness some big launches across the country. Current trends are suggestive of at least a 30-40% growth in launches and sales in the July-September quarter in comparison to the preceding one in major cities.
Consultants expect Mumbai Metropolitan Region to make 2 million sq ft worth of launches with 25-30 big launches with inventory worth Ra. 3750 crores.
Not just that, this time, even branded developers are entering the market.
- Prestige Estates Projects, they are launching three projects in Byculla, Mulund, and Chembur neighborhoods in Mumbai.
- Puravankara (a south-based developer) and Oberoi realty also plan to launch their projects.
- Sunteck Realty is also planning launches in the Oshiwara district Centre and Naigaon Projects. The launch pipeline is expected to be exceptionally strong in MMR as developers take due advantage of the government’s concession. Where developers are getting up to 50% concession if they give the upfront amount of all approvals.
How did 2020 impact the current real estate market?
The previous year saw cut-throat prices and undercutting of inventories by developers. Hence, the money accumulated from higher sales last year was used in acquiring approvals for newer projects. This is one of the reasons for increased demand. Simultaneously, as all the projects have already been approved, customers can wait for the completion without any fears. This demand also brought the approval costs down from 20-25% of the project to 12-13%.
The chairman of the Anarock Group has also stated, “ With Covid-19 cases relatively under better control for now and the vaccination drive gaining more acceptable saturation, housing demand and supply are anticipated to see an uptick in the upcoming festive season.”
However, what might seem discouraging to some buyers is that direct price reduction elements have been replaced with indirect discounts on up to 1-3% property value. Most discounts available are in the form of stamp duty relief.
Additionally, the negotiating power of buyers has also diminished proportionately as the market becomes seller-oriented. If last year the threshold was Rs. 10, developers had charged Rs. 7 and this year they would be charging nothing below Rs. 9.
The discounts might be nominal this time. Sunteck Realty might not be announcing any discounts as well, it will be launching phase-wise projects.
Trehan Luxury Floors might be launching 300 luxury independent floors at sector 67 in the heart of Gurgaon and some other locations, said Saransh Trehan. They will also be offering Flexi-payment plans for prospective homebuyers.
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Real Estate Trends 2021 FAQ's:
The literal meaning of real estate fractional ownership is getting part ownership of any real estate property. In India, fractional ownership in commercial real estate is slowly getting recognized as a reliable form of investment. In fractional ownership of CRE investors generally invest in property that is mostly accessed by HNIs only. And have obviously very high returns.
In fractional ownership of the real estate, an investor generally pays for a part of an asset and property and becomes part-owner of that property. Now whatever profit the company or property owns, the fraction of profit is shared with the owners.
Fractional ownership is basically based on the fraction of property owned by an investor. Here if a person invests Rs. 25 lakh in a property worth 1 crore they own a quarter of the property. And now a quarter of whatever profit the company earns will be shared with the investor.