Which property is best for Rental income: Residential or Commercial? -

Which property is best for Rental income: Residential or Commercial?

Residential property, vakeelno1

People often do not realise the difference between residential and commercial properties, while making an investment for renting property in India. The leasing businesses in the residential property and commercial property have entirely different dynamics. Rental housing emerged as a concept in India, to provide to the severe housing shortage of affordable houses. The operating costs of rental housing properties are minimum, as the tenant only requires essential, yet functional infrastructure.

However, commercial property investments (i.e., offices and malls) typically require high investment and come with leasing and vacancy risks. Moreover, there’s a direct impact on the Indian economy and real estate market cycles on this segment. This is unlike residential housing, which is uncorrelated with markets, as it is end-user driven and there exists a huge shortage.

Rental Income: Commercial or Residential Property

  • Commercial properties are always expensive as compared to residential except you are investing in individual shops.
  • Commercial properties have more extended lease time periods and higher rental value, as compared to residential projects.
  • For repairs and maintenance, the tenant is usually responsible for it in commercial properties, while it is totally the landlord’s responsibility in the case of residential properties.

Which is more attractive for rental income?

In terms of legal aspects, commercial properties are more complicated, they have longer leased periods and can provide you with the higher rental amount if you get a big deal for a longer period of time. The rental cost of a residential property does not go down if the market is slow, unlike commercial properties. However, one should be well-versed in how the commercial property market works, before entering into it.

Experts believe that commercial property investments can get anywhere between 6%-10% rental yield, depending on the quality and location of the property. However, capital appreciation is limited. Many institutional funds are concentrating on commercial property, for medium to long-term investments.

In India, return on housing rentals, when managed by individuals, are not attractive on ready-to-occupy properties. However, if we inspect rental housing on a large scale, with institutional or large property investors who enter at an initial stage, it is likely to yield higher returns related to commercial properties.

Residential properties are less complicated and simpler to understand for a new investor. One can determine its value through comparisons, while this may not be so simple in the commercial segment. However, the commercial section can fetch excellent income. You can expect at least Rs 40 lakh as yearly income, by investing in a property worth Rs 4 to 5 crores in a prime location.

However, the rental returns from commercial property are usually higher in comparison to a residential property. Property buyers should remember that it is ruled by various factors, such as the right selection of property, location, procurement price, current market conditions, etc.


Residential vs commercial properties: Benefits and drawbacks

Residential property Commercial spaces



Stable rental income that goes up, as the property’s value rises. Consistent and handsome rental income chance.


Availability of tax benefits. If you choose a prime location like Mumbai, Delhi, Chandigarh there are more chances, you may get the good return from tenants.
Freedom for usage of the property as you require – you can give it on rent or move into it or even set up personal office space as well. Longer lease time periods.
A lifelong property that can be passed on to your next generation. Over time, rental value surges with capital appreciation.




Regular maintenance and upkeep of the property. One may not be able to keep the property vacant for long, as it may disturb cash flows.


High risk of delay in possession of a property. The investor must be willing to take a risk, with a large amount of capital.