Chasing 10% Rental Yields: Why Indian HNIs Are Shifting from Debt Products to Commercial Property

Chasing 10% Rental Yields – Why Indian HNIs Prefer Commercial Property Over Debt

In the last few years, India’s wealthy investors have redefined their approach toward wealth creation. High-net-worth individuals (HNIs) who once parked their money in debt products such as fixed deposits, bonds, and traditional savings instruments are now turning their attention to commercial real estate. The reason is simple – stable rental yields of 8–10% and strong capital appreciation potential.

This shift marks a significant change in the Indian investment landscape, as HNIs increasingly view commercial properties not just as tangible assets but as powerful wealth multipliers. Let’s explore why this trend is gaining traction, what’s fueling the move away from debt products, and how HNIs are capitalizing on India’s booming commercial property sector.

The Decline of Debt Products Among HNIs

For decades, fixed deposits (FDs), bonds, and other debt instruments were considered the go-to investment options for Indian HNIs. They offered safety, predictable returns, and easy liquidity. However, things have changed:

Falling Interest Rates: Most FDs now offer between 5% and 6.5%, barely beating inflation. After-tax returns are even lower, leaving investors dissatisfied.
Limited Wealth Growth: Debt products are risk-averse by nature, which means they lack the wealth-compounding power required for long-term wealth preservation and growth.
Inflation Hedge Issues: With inflation averaging around 5–6%, real returns from debt instruments are negligible.

In contrast, commercial real estate investments provide inflation-protected rental yields and strong appreciation, making them more attractive for HNIs seeking better returns.

Why Commercial Real Estate Is Gaining Popularity

1. Attractive Rental Yields (8–10%)

Unlike residential real estate, which typically yields just 2–3% in rentals, commercial spaces such as office buildings, retail outlets, and warehouses can generate 8–10% annual rental income. For an HNI, this consistent cash flow is a strong incentive.

2. Long-Term Tenant Stability

Commercial properties are often leased by corporates, MNCs, banks, and retail chains under long-term agreements (5–9 years). This reduces vacancy risk and ensures steady income streams.

3. Diversification from Equities & Debt

HNIs already have significant exposure to stocks and bonds. By adding commercial property, they diversify their portfolios, balancing risk and reward.

4. Capital Appreciation Potential

Prime commercial spaces in metro cities like Mumbai, Bengaluru, Hyderabad, and Delhi NCR have witnessed steady price appreciation, driven by urbanization, IT/tech growth, and multinational expansions.

5. Rise of REITs & Fractional Ownership

Earlier, commercial property was accessible only to ultra-rich investors who could afford large ticket sizes (₹25–50 crore). Today, with REITs (Real Estate Investment Trusts) and fractional ownership platforms, HNIs can enter this asset class with much lower investments, sometimes starting as low as ₹25 lakh.

The Shift from “Owning Homes” to “Owning Cash Flow”

Traditionally, Indians believed in buying multiple homes for investment. However, the economics of residential real estate have weakened over the years.

Low rental yields (2–3%) make it a poor income-generating asset.
High maintenance costs eat into returns.
Uncertainty in resale values due to oversupply in many markets.

HNIs are now realizing that owning a commercial office or retail space yields better returns than owning multiple flats. The focus is shifting from “emotional ownership” of homes to “rational cash flow generation.”

Key Commercial Property Segments Attracting HNIs

Grade-A Office Spaces – Backed by IT, consulting, and financial services firms.
Warehousing & Logistics – Rapid growth due to e-commerce and manufacturing.
Retail Outlets & Malls – Anchored by global brands and high footfall locations.
Co-working Spaces – Popular among startups and corporates adapting hybrid work.

Case Example – How HNIs Benefit

Imagine an HNI invests ₹10 crore in a Grade-A office property in Bengaluru:

Rental Yield: At 9%, they earn ₹90 lakh annually in rental income.
Appreciation: With 6–8% capital growth annually, the property value can rise significantly in 5–7 years.
Tax Benefits: Real estate offers depreciation benefits and structured tax planning opportunities.

In comparison, if the same ₹10 crore was parked in fixed deposits at 6%, the post-tax return would barely be ₹40–45 lakh annually, with no asset appreciation.

The Role of Fractional Ownership in Democratizing Access

Fractional ownership platforms are revolutionizing commercial real estate by allowing multiple investors to co-own high-value properties. HNIs are using this to:

Spread their investments across multiple assets.
Gain exposure to prime properties with lower ticket sizes.
Enjoy professional property management and hassle-free maintenance.

This model has made commercial real estate more liquid, accessible, and attractive.

Risks and Considerations

While commercial real estate is lucrative, it isn’t risk-free. HNIs must factor in:

Market Cycles: Rental demand may fluctuate during downturns.
Tenant Risk: If a tenant exits, finding a replacement can take time.
Liquidity: Unlike stocks or bonds, selling property can take longer.
Regulatory Oversight: Compliance with RERA, stamp duties, and taxation is essential.

Most HNIs mitigate these risks by working with professional real estate consultants, REITs, or fractional ownership platforms.

Conclusion – A Strategic Wealth Play for HNIs

The move from low-yield debt products to high-yield commercial property marks a shift in mindset for Indian HNIs. Instead of chasing emotional satisfaction from owning homes, they are now chasing sustainable cash flows and superior long-term growth.

With India’s commercial real estate sector projected to grow steadily, backed by IT expansion, urban development, and multinational demand, the 8–10% rental yield play is set to attract even more wealthy investors.

For HNIs, the message is clear: Don’t just own property, own income.

Tags: Commercial Real Estate Indian HNIs Rental Yield Real Estate Investment REITs Fractional Ownership Wealth Management Investment Trends Capital Appreciation Income Property

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