The short answer
Residential property is the familiar investment: smaller ticket sizes, a wide pool of tenants and buyers, easy financing and a low rental yield, commonly cited as roughly 2 to 3.5 per cent gross in large Indian cities. Its return relies heavily on the price rising over time.
Commercial property — offices, shops, warehouses — usually earns a higher rental yield on longer leases with built-in increases. For pre-leased grade-A offices, yields of roughly 6 to 9 per cent are commonly cited by industry commentary. But ticket sizes are larger, a vacancy can last months or years, the tenant's business health becomes your risk, and the tax and paperwork are more involved.
If you want income and can evaluate leases and tenants, commercial property can suit. If you want simplicity, smaller amounts, and a property you or your family might live in, residential fits better. If you want commercial income without buying a whole unit, listed REITs regulated by SEBI are an alternative worth comparing.
Rental yields: what the ranges mean
Gross yield is the annual rent divided by the price. The ranges above are commonly quoted figures, not guarantees, and not something we have measured. They vary widely by city, location, building grade, tenant and lease terms. A shop on a busy high street and an office floor in a secondary building can have very different yields from the same headline category.
Net yield is what matters: rent minus the costs the owner bears (property tax, maintenance or common area charges not passed to the tenant, insurance, repairs, letting fees) and an allowance for vacancy, divided by the total cost including stamp duty and registration. Our pre-leased commercial property guide works through the arithmetic, and the rental yield calculator does it for your figures.
A yield well above the range for similar property is a question, not a bargain. It can mean the tenant is weak, the lease ends soon, the rent is above market, or the price reflects a problem.
Lease tenure, lock-ins and escalation
Residential leases are typically short, often eleven months, renewed with negotiated increases. Tenants change often, so you face frequent but short gaps between tenants.
Commercial leases are usually longer and more detailed: a term of several years, a lock-in period during which neither side (or only the landlord) can terminate without paying, a fixed escalation such as a percentage increase every few years, and clauses on fit-outs, maintenance charges, signage and exit. A well-drafted lease with a strong tenant is the main source of a commercial property's value.
Read the lease, not the summary. How long is left on the lock-in? What happens at the end of the term? Can the tenant leave early, and with what notice? Our commercial lease agreement clauses guide explains the terms to look for.
Vacancy risk and tenant risk
When a residential tenant leaves, a well-priced flat in a good locality can usually be re-let reasonably quickly, because many households are looking. When a commercial tenant leaves, finding a replacement can take far longer, the new tenant may want a rent-free fit-out period, and you may have to spend on the space to make it lettable.
In commercial property, the tenant's business is your risk. A tenant in difficulty may pay late, seek a rent cut or leave at the end of the lock-in. Check the tenant's standing, the payment history, the security deposit and how much of the building or market depends on one sector.
Price the property as if the tenant will leave at the first chance, and ask what it would be worth empty. If that value is far below the price, you are paying for the lease more than for the property.
Ticket size and diversification
Commercial units, especially in good office buildings, usually cost more than a typical flat, and lenders lend a smaller share. That concentrates a large part of an investor's wealth in one asset and one tenant.
Residential property allows smaller amounts and can be spread over more than one property over time. Neither is easily divisible: you cannot sell a quarter of a flat or a shop when you need cash. REITs, discussed below, are one way to get commercial exposure in smaller amounts.
GST, TDS and income tax on rent
GST: renting a residential dwelling for use as a residence is generally exempt from GST, with exceptions where the tenant is a GST-registered person. Renting commercial property is a taxable service at 18 per cent: a GST-registered landlord charges it, and where the landlord is not registered and the tenant is, the tenant pays it under reverse charge. Our GST and TDS on commercial rent guide explains the registration threshold and the rules.
TDS: a tenant required to deduct tax deducts 10 per cent on rent for land or buildings where the rent exceeds ₹50,000 for a month or part of a month, under section 393(1) of the Income-tax Act, 2025 (section 194-I of the 1961 Act before 1 April 2026). Commercial tenants are usually businesses that deduct; residential tenants often are not.
Income tax: rent from either kind of property, if it is not part of your business, is taxed as income from house property. You can deduct municipal taxes paid, a standard deduction of 30 per cent of the net annual value, and interest on a loan taken to buy or build the property. When you sell, the gain is taxed as capital gains; see our capital gains guide.
Loans: home loans, commercial property loans and LRD
Residential property can be bought with a home loan within the Reserve Bank of India's loan-to-value caps (90, 80 or 75 per cent depending on the loan size), usually at the lowest rates lenders offer.
Commercial property is financed through commercial property loans or loans against property, which usually come with a lower loan-to-value, higher interest rates and shorter tenures than home loans. Terms differ widely by lender and by the borrower's income.
Lease rental discounting (LRD) is a loan against the future rent of a property already let to a strong tenant. The lender sizes the loan on the rent receivable over the remaining lease, often takes an assignment of the rent so the tenant pays into an account the lender controls, and sets the tenure to match the lease. An LRD loan can release capital from a pre-leased property, but it depends on the tenant staying: if the tenant leaves, the repayment source goes with them.
REITs: commercial income without owning a unit
Real Estate Investment Trusts (REITs) are trusts that own income-producing real estate, mainly offices and retail, and are regulated by the Securities and Exchange Board of India (SEBI) under the SEBI (Real Estate Investment Trusts) Regulations, 2014. A REIT must hold at least 80 per cent of the value of its assets in completed and rent-generating properties and distribute at least 90 per cent of its net distributable cash flows to unitholders.
REIT units are listed and traded on stock exchanges. Since 2021, SEBI has set the trading lot at one unit and the minimum application in a public issue at ₹10,000 to ₹15,000, so investors can buy small amounts and sell on the exchange. Unit prices move with the market, so a REIT is not a fixed-income product.
Since 2024 SEBI has also regulated Small and Medium REITs (SM REITs), for asset pools of at least ₹50 crore and below ₹500 crore, with a minimum investment of ₹10 lakh per investor. These replaced much of the earlier unregulated 'fractional ownership' market.
A REIT gives diversification across buildings and tenants, professional management and liquidity, in exchange for no control over the property and exposure to market prices. Distributions are made up of different components (interest, dividend, repayment of debt) taxed differently; check the REIT's disclosures and the current tax rules.
Side by side
Yield: commercial — commonly cited as roughly 6 to 9 per cent for pre-leased grade-A offices; residential — commonly cited as roughly 2 to 3.5 per cent in large cities.
Lease: commercial — multi-year leases with lock-ins and escalations; residential — usually eleven-month agreements, renewed.
Vacancy: commercial — less frequent but longer and costlier; residential — more frequent but usually shorter.
Ticket size: commercial — usually larger; residential — smaller and easier to spread.
GST on rent: commercial — 18 per cent, by the landlord or by a registered tenant under reverse charge; residential — generally exempt for use as a residence.
TDS on rent: both — 10 per cent where rent exceeds ₹50,000 for a month and the tenant must deduct, more common with commercial tenants.
Loans: commercial — lower loan-to-value, higher rates, LRD for pre-leased property; residential — home loans within RBI caps.
Liquidity: commercial — narrower buyer pool; residential — wider pool; REITs — traded on exchanges.
Which to choose if…
You want regular income and can read a lease and judge a tenant: a pre-leased commercial unit with a strong tenant and a long remaining lock-in, priced on what it would be worth empty.
You want a smaller ticket, easy financing and a property your family might use: residential.
You want commercial income in small amounts, with liquidity and diversification: listed REITs.
You cannot afford a long vacancy: residential, or REITs; a single commercial unit with one tenant is concentrated risk.
You are near retirement and need steady income: compare a REIT's distributions with a pre-leased unit's net yield after vacancy allowance, and do not put most of your savings into one property.
Common mistakes
Judging a commercial property on its headline yield instead of the net yield after costs and a vacancy allowance.
Ignoring the lock-in end date and what happens when the lease ends.
Assuming commercial rent comes without GST and TDS paperwork.
Taking an LRD loan without planning for the tenant leaving.
Buying unregulated fractional ownership products instead of SEBI-regulated REITs or SM REITs, without understanding the difference.
Comparing commercial yields with residential yields without allowing for the larger ticket and the longer vacancies.
Common questions
Is commercial property a better investment than residential?
It usually pays a higher rental yield on longer leases, but it costs more, takes longer to re-let and depends on the tenant's business. Residential is cheaper, easier to finance and to sell, with a lower yield. The right choice depends on your budget, your need for income and your ability to judge leases.
What rental yield does commercial property give in India?
Industry commentary commonly cites roughly 6 to 9 per cent gross for pre-leased grade-A offices. That is a range, not a promise; work out the net yield for the specific property.
Is GST charged on commercial rent?
Yes, at 18 per cent. A registered landlord charges it; where the landlord is not registered and the tenant is, the tenant pays it under reverse charge.
What is TDS on commercial rent?
10 per cent where rent for land or buildings exceeds ₹50,000 for a month or part of a month, deducted by a tenant required to deduct, under section 393(1) of the Income-tax Act, 2025 (earlier section 194-I).
What is lease rental discounting?
A loan against the future rent of a let property, sized on the rent receivable over the remaining lease, often with the rent paid into an account the lender controls.
What is a REIT and how much do I need to invest?
A SEBI-regulated trust that owns income-producing real estate and distributes at least 90 per cent of its net distributable cash flows. Listed REIT units trade on exchanges in lots of one unit. SM REITs need a minimum of ₹10 lakh.
Can I get a home loan for a shop or office?
No. Home loans are for residential property. Commercial property is financed through commercial property loans, loans against property or, if it is already let, lease rental discounting, usually at a lower loan-to-value and a higher rate.
Sources
- Commercial and residential yield ranges: commonly cited in industry commentary and consultant research (for example Knight Frank India office and residential market reports; ANAROCK research reported in Business Standard, April 2024); ranges, not measurements by this site; checked 2 October 2026
- Notification No. 12/2017-Central Tax (Rate) (exemption for renting of residential dwelling for use as residence, as amended from 18 July 2022) and Notification No. 13/2017-Central Tax (Rate) (reverse charge on renting of commercial property, as amended); checked 2 October 2026
- Income-tax Act, 2025, section 393(1) (formerly section 194-I), and section 22 (deductions from house property income), in force from 1 April 2026; checked 2 October 2026
- Securities and Exchange Board of India, SEBI (Real Estate Investment Trusts) Regulations, 2014, as amended — 80 per cent completed and rent-generating assets, 90 per cent distribution; SEBI board decision of 2021 on minimum application value and one-unit trading lot; SEBI (REIT) (Amendment) Regulations, 2024 on SM REITs, notified 8 March 2024 (sebi.gov.in); checked 2 October 2026
- Lender product pages on lease rental discounting (for example SBI, Aditya Birla Capital); checked 2 October 2026
- Reserve Bank of India directions on housing finance — loan-to-value caps (rbi.org.in); checked 2 October 2026
Last checked 2026-10-02.