Delta Square Office for Sale, MG Road Gurgaon

Office space for sale in Delta Square MG Road Gurgaon is quoted at about Rs 15,000 to Rs 16,000 per sq ft, and the interesting thing about that price is not the number but what it implies about the rent.

Against the building's furnished rent of Rs 120 per sq ft a month, Rs 15,000 to Rs 16,000 per sq ft is a gross yield of 9.0 to 9.6 per cent. MG Road does not trade at nine per cent. A well-let Grade A floor on this corridor changes hands nearer 6.5 to 7. So one of the two figures the market is publishing for this building needs explaining, and which one it is decides whether this is a good purchase.

The arithmetic

Two explanations, pointing different ways

One: the Rs 120 is a furnished rent. Furnished space carries the last occupier's fit-out inside the rate, and a fit-out is a depreciating asset you are renting rather than a building you are buying. Strip it out and the shell rent consistent with Rs 15,000 to Rs 16,000 at a normal MG Road yield is about Rs 81 to Rs 93 per sq ft. On this reading the sale price is fair, the nine per cent is an illusion created by the furniture, and a buyer who underwrites nine per cent on a floor that will re-let bare at Rs 85 has overpaid.

Two: the sale band is genuinely cheap for the road. MG Road spans Rs 12,000 to Rs 25,000 per sq ft and this sits in the lower half, on a building that also lets below the corridor — Rs 120 plus Rs 30 against an MG Road average of Rs 180 and comparable furnished space at Rs 160 to Rs 180. Two independent readings both discounting the same building is a pattern rather than a coincidence. On this reading the price is right and the question is what the market is pricing: a 2012 build, the Iffco Chowk end rather than the Sikanderpur end, and however many owners the floors are divided between.

These are not the same investment. The first is an ordinary asset with a misleading headline. The second is a genuinely cheap asset with a reason attached. You establish which by asking for the bare-shell rent on a vacant floor and the passing rent on a let one, separately, and refusing to accept a single blended number.

What you are buying into

Delta Square was completed in 2012: three basements, ground and five floors on MG Road near Iffco Chowk, visible from NH-48, with MG Road metro within about a kilometre and Iffco Chowk station at the other end of the stretch. Marketed floors have run at about 10,870, 11,000 and 12,500 sq ft. One of them gives 8,125 sq ft of carpet against 12,500 super — a loading of about 54 per cent, which matters to a buyer too, because the rent your tenant will pay is set by what they can use.

Fourteen years of lifts, chillers and common areas is the other half of the picture. On a strata floor the capital expenditure inside your demise is yours alone, and the capital expenditure on the shared parts needs every other owner to agree to it. Ask what has been replaced in the last two years, what the sinking fund holds, and what the maintenance dues position is on the specific floor — arrears attach to the unit.

Against the alternatives

Delta Square sits between the two on price and, once the furniture is stripped out, close to Veritas on yield. What it has over Sohna Road is the station and the address; what it gives up against Golf Course Road is about Rs 5,000 per sq ft and a newer building.

The costs on top

Stamp duty in Gurugram is 7 per cent for a male buyer inside municipal limits, 5 per cent for a female buyer and 6 per cent for joint buyers, charged on the higher of your agreement value and the commercial collector rate, with a slab registration fee that reaches its Rs 50,000 cap from Rs 90 lakh. On a Rs 2 crore floor that is about Rs 14.5 lakh. GST is nil on a completed property holding its completion certificate. Pull the current commercial collector rate for the sector before you negotiate, because agreeing a price below the schedule saves nothing.

Our view

Do not buy the nine per cent. It is the most attractive number attached to this building and it is the one least likely to survive a re-let, because it is computed on a furnished rent against a capital value. Work out the shell rent instead, apply a corridor yield to that, and see whether the answer is still Rs 15,000 to Rs 16,000. If it is, this is a decent MG Road asset at a fair price. If the shell rent comes back at Rs 85, you are buying an ordinary 6.5 per cent asset that has been dressed as a nine.

In short: Ask for the bare-shell rent before you agree a price. Every other question about this building follows from it.

The obvious comparison on the same road is DLF Corporate Park, where the strata market is deeper and the rate per sq ft is the number to hold this one against before you argue about age.

Frequently asked questions

What does office space cost to buy in Delta Square MG Road Gurgaon?

About Rs 15,000 to Rs 16,000 per sq ft, inside a wider MG Road range of Rs 12,000 to Rs 25,000. What matters more than the number is what it implies: against the building's furnished rent of Rs 120 per sq ft a month, Rs 15,000 to Rs 16,000 is a gross yield of 9.0 to 9.6 per cent, and MG Road does not trade at nine per cent.

Why does that yield not make sense?

Because a well-let Grade A floor on this corridor changes hands nearer 6.5 to 7 percent, and a rental yield of nine is not something MG Road pays. There are two honest explanations and they point different ways. Either the Rs 120 is a furnished rent, in which case part of it is paying for somebody's fit-out rather than the building, and the shell rent consistent with Rs 15,000 to Rs 16,000 at 6.5 to 7 per cent is about Rs 81 to Rs 93 per sq ft. Or the sale band is genuinely cheap for MG Road, and the question is what the market knows about this building that the price is reflecting.

How do I tell which it is?

Ask for the bare-shell rent on a vacant floor and the passing rent on a let one, separately — furnished vs bare shell is the whole question here. If shell space lets at Rs 81 to Rs 93, the sale band is fair and the yield illusion is the furniture. If shell space lets nearer Rs 120, the sale price is low for the income and you should be asking about the lease covenants, the building's vacancy history and how many owners the floors are split between.

How does Delta Square compare with the rest of MG Road?

It lets below the corridor. The MG Road average is about Rs 180 per sq ft a month and furnished space in a comparable tower on the same stretch is quoted at Rs 160 to Rs 180 before maintenance, against Rs 120 plus Rs 30 here. On the sale side the corridor spans Rs 12,000 to Rs 25,000 per sq ft and this sits in the lower half. Both readings say the same thing: the market discounts this building relative to MG Road's best, and a buyer should establish why.

What are the costs on top of the price?

Stamp duty of 7 per cent for a male buyer inside municipal limits, 5 per cent for a female buyer and 6 per cent joint, plus a slab registration fee that reaches its Rs 50,000 cap from Rs 90 lakh, charged on the higher of your agreement value and the commercial collector rate. On a Rs 2 crore floor that is about Rs 14.5 lakh. GST is nil on a completed property that already holds its completion certificate.

Is a 2012 building a problem?

Not on its own, and age alone does not make an office a bad investment. But it is fourteen years of lifts, chillers and common areas, competing for tenants against newer stock on the same road. On a strata purchase the capital expenditure inside your floor is yours alone and the capital expenditure on the common areas needs every other owner to agree. Ask what has been replaced and what the sinking fund holds.