DLF Towers Jasola Office for Sale, South Delhi

Office space in DLF Towers Jasola is asked at about Rs 22,000 per sq ft. The same building lets at Rs 110 per sq ft a month, with some units at Rs 95. Those two numbers are published on the same agency's pages, so the yield can be worked out properly — and worked out properly it is not six per cent.

Four yields for one purchase

Take a 1,056 sq ft suite, which is the size this building actually lets. It costs Rs 2.32 crore at the asking rate, and produces Rs 13.94 lakh a year at Rs 110.

Two things follow, and they pull in opposite directions. The honest entry yield is 4.81 per cent, not six — below a fixed deposit, before a single month of vacancy. And the escalation that makes a tenant's life expensive makes an owner's return work: by year nine the same unit is on 7.48 per cent of what you paid.

The costs the six per cent leaves out

Delhi stamp duty and registration. Delhi charges stamp duty of six per cent for a male buyer and four for a female, plus one per cent registration, so a Rs 2.32 crore purchase costs about Rs 2.49 crore to complete — Rs 16.3 lakh of it in duty. Confirm the current schedule before you budget, but seven per cent of the price is the right order, and it takes 39 basis points straight off the yield. A female buyer or a joint purchase saves about Rs 4.6 lakh here, which is worth structuring for.

Maintenance at Rs 15.74 per sq ft a month. On this suite that is Rs 1.99 lakh a year. In a strata-owned office building it is usually the landlord who carries it between tenancies and often during them, and it is the single largest gap between a gross yield and a real one: 80 basis points on this purchase.

What the six per cent does not leave out, for once, is GST. The sale of a completed commercial building is not a supply of goods or services, so there is no GST on the purchase price — unlike the rent, where the letting side of this building shows the 18 per cent mattering a great deal to a tenant who cannot claim it.

The escalation is the investment case

The published lease terms here include a five per cent annual rent increase. Read from a tenant's chair that is unwelcome; read from an owner's it is the whole argument for buying at 4.81 per cent.

Compounded over a nine-year term, Rs 110 becomes about Rs 163. Against an unchanged acquisition cost, the net yield rises from 4.81 to about 7.48 per cent. Nobody should treat that as guaranteed — it assumes the tenant stays, the clause is honoured and the maintenance charge does not rise in step, and the third of those is unlikely — but it is the correct way to look at a commercial purchase, and it is the calculation the listings do not perform.

So the question to put to a seller is not what the yield is. It is what the escalation clause says and how many years of it are left. A unit with eight years of five per cent ahead of it is a materially different asset from the same unit re-letting next quarter, at the same price.

Where Rs 22,000 sits

This is the most expensive per-foot office purchase in the research, and it is also the only one in Delhi. Some of that premium is the city: Delhi stock is scarcer than Gurugram's, and a Delhi address is not substitutable for a firm whose clients or regulators are in Delhi. Some of it is the building — Grade A, completed 2008, DLF, metro connectivity, and units small enough that the buyer pool includes individuals.

The one thing that makes this purchase unusual

Almost every commercial building in this research sells one of two things: tiny strata suites in old buildings, or whole institutional floors at institutional prices. This one sells thousand-square-foot units in a Grade A 2008 building with a 30,000 sq ft floor.

That is a genuinely scarce combination for a buyer with Rs 2 to 3 crore, and it has a specific consequence at resale: your exit market is both individuals, who can afford the ticket, and occupiers, who want the address. Two buyer pools instead of one is worth more than any of the yield differences on this page.

What to settle before you pay a deposit

• The lease: tenant, unexpired term, escalation clause and lock-in. On this asset those four lines are the valuation.
• Who pays maintenance at Rs 15.74, and what it covers between tenancies.
• The stamp duty rate that applies to your buyer profile, since the difference is about Rs 4.6 lakh on this unit.
• Whether the quoted area is carpet or chargeable. One Gurugram building in this research publishes a 53.8 per cent loading, so the question is not academic.
• The parking bays that come with the unit, since a bay lets for Rs 4,500 a month and is a separate income line.

Frequently asked questions

What does office space cost to buy in DLF Towers Jasola?

About Rs 22,000 per sq ft asked, so roughly Rs 2.32 crore for a 1,056 sq ft suite, which is the size the building actually lets. That is the most expensive per-foot office purchase in this research and the only one in Delhi rather than Gurugram.

What is the real rental yield?

Six per cent if you divide the Rs 110 rent by the price, which is what everyone quotes. It is 5.61 per cent once Delhi stamp duty and registration are added to the cost, and 4.81 per cent once maintenance of Rs 15.74 per sq ft a month comes out of the income. The honest entry yield is therefore under five per cent.

Does the yield improve over time?

On the published terms, substantially. A five per cent annual escalation takes Rs 110 to about Rs 163 by the ninth year, which lifts the net yield on the original all-in cost from 4.81 to about 7.48 per cent. That assumes the tenant stays, the clause is honoured and the service charge does not rise in step, and the last of those is unlikely, so treat it as the direction rather than the number.

What are the transaction costs in Delhi?

Stamp duty of six per cent for a male buyer and four per cent for a female, plus one per cent registration, so about seven per cent of the price for a male buyer. On a Rs 2.32 crore purchase that is roughly Rs 16.3 lakh, and a female or joint purchase saves about Rs 4.6 lakh. Confirm the current schedule before budgeting.

Is there GST on buying the office?

No. The sale of a completed commercial building is not a supply for GST purposes, so there is no GST on the purchase price. It is on the rent, at 18 per cent, where it matters to a tenant who cannot claim input credit, which is set out on the letting side of this building.

Why is a small unit in a Grade A building unusual?

Because buildings with 30,000 sq ft floors normally let and sell them whole, which closes them to anyone without an institutional cheque. Here units of about 1,056 to 2,500 sq ft are available in a 2008 Grade A building with DLF's name on it, so the exit market is both individual investors who can afford the ticket and occupiers who want the address. Two buyer pools is worth more than any yield difference on this page.