Residential properties
From an IRR (Internal Rate of return) perspective, the residential segment is the highest return earner. This is possible due to the unique way in which the payment for residential properties is structured, where the buyer pays some upfront money and the balance by way of installments, which allows the builder to block less capital in the project. IRRs for residential projects range between 30% and 35%.
Commercial projects
The return from commercial property is always lower compared with the residential project due to the following reasons.
• There is no cash inflow until the property is completely developed and in a handover stage
• No outright sale of the property occurs; the developer must contend with only lease rentals
As a result, the developer must invest far greater capital of his own before he sees any cash inflow, and due to lease rentals, his payback period increases, in turn reducing his returns from the project compared with the residential project.
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