Capitalisation rate

Net operating income divided by property value. The yield a buyer accepts on a real asset.

A portfolio generating ₹475 crore on a ₹6,800 crore valuation is priced at a 7% capitalisation rate.

The rate moves inversely with value, so a fall in rates raises property prices without any change in rent. Much of the return in commercial real estate over long periods has come from that compression rather than from operations, which is a return nobody can repeat forever.

Compare the capitalisation rate to the government bond yield. That spread is the compensation for the risk and the illiquidity.

Compare it against the ten-year government bond yield rather than against another property. That spread is what an investor is being paid for taking the vacancy risk, the tenant credit risk and the illiquidity, and when it compresses toward zero the asset class is being priced as though buildings were bonds.