Which is better: investing in commercial real estate or PPF?

Commercial real estate and Public Provident Fund (PPF) both have the potential to benefit your investment portfolio. However, when two investment avenues are placed against each other, it is essential to investigate which is the greatest alternative for you. 

Consider the following two investment options:

  1. Purchasing commercial real estate

In recent years, commercial real estate has emerged as one of the most profitable real estate investment segments. Following the initial Covid-19 pandemic-induced dip, the space is roaring back as companies encourage work-from-home policies and the e-commerce and co-working segments experience strong development. 

Consider These Ideas:

  • Commercial real estate has historically provided larger returns than residential real estate, ranging between 9 and 12 percent each year. Even during lean periods, it provides at least 7 to 9 percent.
  • Over a decade or more, investors benefit from substantial capital appreciation, which may be up to 2-3 times the initial investment.
  • Investors can generate a consistent rental income while also benefiting from capital appreciation.
  • Commercial rentals or leases may also include escalation provisions that increase rents by 5% per year or up to 15% every three years to keep up with inflation.
  • Commercial real estate investments have reduced risks, with the primary risk element being vacancies and inability to locate tenants.

The sector is reviving, with Grade-A office space absorption expected to exceed 700 million square feet by 2022. Manufacturing, consultancy, IT and ITeS, E-commerce, hotel, and retail are major demand generators. The industry has benefitted from proactive government reforms like as the Real Estate (Regulation and Development) Act of 2016, the Goods and Services Tax (GST), and ‘Make in India,’ drawing significant investments.

  1. Putting Money Into A Public Provident Fund (Ppf)

PPF is a risk-free, fixed-income investment instrument preferred by many Indian investors, particularly paid professionals. 

Consider these ideas:

  • PPF now has an annual interest rate of 7.1 percent. 
  • It is a risk-free investment with assured rewards.
  • It is a good investment for people who have a low risk tolerance because it is backed by the government. 
  • The minimal annual investment is Rs 500.
  • The maximum annual investment is Rs 1.5 lakh. 
  • The tenure is 15 years, which can be extended in five-year increments if needed.
  • Take advantage of Section 80C tax savings on your PPF investment (up to a maximum of Rs 1.5 lakh).
  • The interest earned on your PPF investment, as well as the ultimate rewards at maturity, are not taxed.
  • PPF accounts can be opened at any public sector bank or post office. Some private banks also provide the service.

Which of the following should you choose?

This is what it all comes down to:

  • Commercial real estate outperforms PPF in terms of returns.
  • With commercial real estate, you may profit from rental income and capital value appreciation.
  • When you invest in this section of real estate, your rental income will improve on a regular basis, allowing you to generate returns that are in line with inflation.
  • PPFs provide set returns guaranteed by the government, and your interest and maturity amount are tax-free. Every year, you also receive tax breaks under Section 80C.
  • Tax deductions for commercial real estate include loan interest, depreciation, and the standard deduction, among other things.
  • PPF allows you to deposit between Rs 500 and Rs 1.5 lakh each year for 15 years, with partial withdrawals permitted after six years.

Important takeaways

Commercial real estate provides certain tax advantages while also allowing you to profit from rising rental returns that are in line with inflation. At the same time, you profit from capital value appreciation. When you reach break-even on your investment (even if it is a significant number), you will immediately profit from it for the rest of your life.

You may also sell the business property for a huge profit after a set amount of time. Furthermore, your returns are higher than those of a PPF. As a result, if you have a long-term investment perspective and the cash to invest, commercial real estate may be the ideal alternative.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.

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