Which is more profitable?
This will depend mainly on the developer’s financial position but more importantly on their experience and knowledge of the residential or commercial property and its market.
From a development perspective, most residential developers build and sell their product and have handsome profits when the residential market is booming. This, of course, means cash in hand to undertake another project but the tax would have to be into account as well. Whereas, with most commercial developments these are built to be held as a medium to long term investments. While there is no cash, the growth in one’s equity position can grow significantly if the development is successful.
If one has to compare the two categories as a build to rent and to exit in 5 years, it has been found through historical evidence that commercial developments are more profitable. From the earlier comparative assessment, that there are more risks involved in commercial properties. Remember, the higher the risk, the more profitable is the investment. However, one would have to be knowledgeable and experienced in the commercial sector.
There are undoubtedly several top-quality commercial developments within most capital city’s diverse suburbs. However residential properties offer developers far higher levels of control over the performance of their assets. Developers in high-grade residential property in established inner-suburban locations can anticipate stable tenancies and robust capital growth.