DLF South Court Office for Sale, Saket New Delhi

Office space for sale in DLF South Court Saket Delhi is sold pre-leased, on a rent-yield basis, which means the price is not quoted so much as calculated from the lease. Here is the calculation, and the figure in it that is genuinely uncertain.

At Rs 145 per sq ft a month all-in and a Saket Grade A yield of 6.5 to 7 per cent, a floor works out at about Rs 24,900 to Rs 26,800 per sq ft. At the higher Rs 180 rate circulating for this building, the same yields give about Rs 30,900 to Rs 33,200. That is a 25 per cent spread on the same asset, decided entirely by which rent the floor actually passes at.

The arithmetic, in full

On a 5,000 sq ft floor that spread is Rs 12.5 crore against Rs 16.6 crore. Two questions decide it, and both are answerable from documents: what is the passing rent per sq ft, and what yield does a floor with this covenant and this remaining term deserve. Neither is a matter of opinion once the lease is in front of you.

The rent is the uncertain number, not the yield

Two rates circulate for this building: Rs 180 per sq ft a month, and about Rs 120 plus Rs 25 maintenance. Grade A space across Saket District Centre has held a range of about Rs 90 to Rs 175, which puts Rs 180 at or above the top of the published band for the whole district centre and Rs 145 comfortably inside it.

For a buyer that matters more than it does for a tenant. A tenant who is quoted Rs 180 negotiates. A buyer who capitalises Rs 180 pays for it once, in full, and then discovers at the first reversion what the floor actually re-lets at. Underwrite the lower rent and treat anything above it as upside.

What you are buying

DLF South Court was completed in 2010: three basements, ground and seven floors of Grade A space in Saket District Centre, with central air conditioning, high-speed lifts, full power backup and manned and electronic security. Listings have run from about 3,000 sq ft to about 26,875 sq ft. Two international agencies market space in it.

The district centre itself is the asset behind the asset. It is DDA-auctioned land developed as Grade A commercial only, on Press Enclave Marg, next to the Select Citywalk and DLF Place mall cluster, Max Saket and a Yellow Line station. It is finished — no new plots are coming — so the supply side is fixed in a way no Gurgaon corridor is. That is the strongest argument for a South Delhi office purchase and it is worth more than half a point of yield.

Against the Gurgaon alternatives

Saket is the dearest of the four and yields about what Golf Course Road does. What the extra capital buys is not income, it is the supply position: a finished district centre on DDA land in South Delhi cannot be added to, and the three Gurgaon corridors above it can and are. An investor who believes rents are set by supply should pay the premium. One buying for yield alone should not.

Five documents before you agree a price

1. The lease deed. Not a summary. The covenant, permitted use and assignment clause all sit in it.
2. The passing rent per sq ft, and whether it is inclusive of maintenance. This is the number the whole valuation turns on, and the two figures circulating for this building are 25 per cent apart.
3. The escalation clause and the lock-in remaining. Four years of lock-in at 12 per cent every three years is a different asset from eight months.
4. The security deposit held. It transfers on sale and is real money in the settlement.
5. When the rent was last reset. A floor let three years ago below market is worth more than its passing rent suggests; one let at the top of the market has its reversion pointing downward.

The costs on top

Delhi stamp duty is 6 per cent for a male buyer, 4 per cent for a female buyer and 5 per cent for joint buyers, plus a 1 per cent registration fee, charged on the higher of the agreement value and the circle rate. On a Rs 12.5 crore floor that is about Rs 87.5 lakh for a male buyer. Confirm the current commercial circle rate for Saket before you negotiate: agreeing a price below the schedule saves nothing, because you are taxed on the schedule either way.

Our view

Underwrite Rs 145, not Rs 180. That single decision moves the fair value of a 5,000 sq ft floor by about Rs 4 crore, and it is the difference between a purchase that survives its first reversion and one that does not. Everything else about this asset is straightforward: a 2010 Grade A building in the best commercial address in South Delhi, on land that cannot be added to, at a yield that is ordinary and should be.

In short: The lease sets the price. Get the passing rent in writing, capitalise the lower of the two figures in circulation, and pay the supply premium only if you believe in it.

Frequently asked questions

What does office space cost to buy in DLF South Court Saket?

It is sold pre-leased, on a yield basis, so the price is calculated rather than listed. Take the passing rent, divide by the yield. At Rs 145 per sq ft a month all-in and 6.5 to 7 per cent, a floor works out at about Rs 24,900 to Rs 26,800 per sq ft. At the higher Rs 180 quote the same yields give about Rs 30,900 to Rs 33,200. Which rent the floor actually passes at is therefore the whole valuation.

Why is the price given as a yield rather than a number?

Because a pre-leased office is bought for its income. The building is a wrapper around a lease, and the lease is what you are pricing: the covenant, the passing rent, the term remaining and the escalation. Two identical floors in this building can be worth 25 per cent apart on the strength of their tenants alone.

What yield should I be working with in Saket?

Six and a half to seven percent for well-let Grade A in an established South Delhi district centre. Materially above that on this address should prompt a question about the covenant or the remaining term rather than a purchase, and materially below it means you are paying for expected rental growth rather than for income.

How does Saket compare with Gurgaon on price?

Saket vs Gurgaon is a question about supply as much as about income, and Saket is the dearer market on capital value and the tighter one on stock. Saket District Centre is finished DDA land with no new plots coming, where Gurgaon adds Grade A every year. A floor here at Rs 25,000 to Rs 33,000 per sq ft compares with about Rs 18,200 to Rs 24,000 for Golf Course Road and Rs 7,100 to Rs 8,800 for Sohna Road. As an investment you are buying scarcity as much as income.

What should I ask for before agreeing a price?

The lease deed, the passing rent per sq ft, the escalation clause, the lock-in remaining, the security deposit held and the maintenance dues on the floor. Then ask when the rent was last reset. A floor let three years ago below today's market is worth more than its passing rent suggests; one let at the top of the market has its reversion pointing downward.

What are the transaction costs in Delhi?

Stamp duty in Delhi is 6 per cent for a male buyer, 4 per cent for a female buyer and 5 per cent for joint buyers, with a 1 per cent registration fee, charged on the higher of the agreement value and the circle rate. Confirm the current commercial circle rate for Saket before you negotiate, because agreeing a price below the schedule saves nothing — you are taxed on the schedule either way.