I am thinking of investing in a commercial property. What are some of the things i should think about/consider before i start searching for a property to purchase?
Purchasing a commercial property can be a little more intimidating as it involves many considerations or factors to look at. Those that you must consider beforehand include:
A) There are 3 types of commercial properties, namely office, retail & industrial.
B) Commercial property generates higher returns but they are also riskier than their residential counterparts.
C) It has a longer lease period of time which is around 5 years, unlike residential property.
D) For a commercial property, the tenant usually pays most of the outgoings, such as council rates, insurance, repairs cost and maintenance fees.
E) When purchasing a commercial property it is important to keep records right from the start. This is because if the property used in the running of a business is subject to capital gains tax, the owner can claim tax deductions for expenses associated with owning it, such as interest on a loan to buy the property and maintenance expenses.
F) You are also eligible to claim for Goods & Sevices Tax (GST), which is included in the purchase price. You can also claim GST on other expenses that are related to the property’s purchase.
What are some of the points that i have to look out for in the Sales and Purchase Agreement (SPA)?
A) Ensure that the property details are correctly described in the agreement.
B) The agreed purchase price.
C) Deposit 10% upon signing SPA and the remaining 90% is to be settled within 3 months after signing the SPA.
D) Vacant possession for a sub-sale property normally takes 3-5 working days after the purchaser has settled the payment in full. If the SPA is subjected to tenancy, the purchaser will only obtain legal possession as the owner of the property.
What are the pros and cons of investing in commercial properties?
A) Higher rental income.
B) Longer lease period.
C) Solid growth in capital appreciation.
D) No other outgoing expenses.
A) Higher tenant turnover.
B) Economically vulnerable.
C) Zoning laws and changing infrastructure in the area can be detrimental.
D) Higher interest rate with lower margin and tenure for the bank loan
I am a business owner looking for trade premises. Should i buy a commercial property or lease it instead?
You will have to analyse and compare the economics of leasing versus buying as well as the factors that determine which option is more feasible for you.
By purchasing, you will get full control of the property, this includes free rein on modification of the unit’s internal layout to suit your needs. Besides that, there is the added advantage if the unit is in a strategic location with great capital appreciation potential, giving you the option to sell for a lucrative profit in the future. Most importantly, planning for your business costing and any future expansion plans will be a lot easier when you know the exact figure that you will be spending each month.
Conversely, leasing may result in possible restrictions, in terms of modification and renovation. It is true that the initial outlay of cash required is generally less for leasing than it is for purchasing, however, there is the uncertainty of increase in rent over time, which will add to higher long-term costs.
Franky Wong – Director ,Vestcom Realty
This article was first published in the iProperty.com Malaysia November 2016 Magazine. Get your copy from selected news stands or view the magazine online for free at www.iproperty.com.my/magazine. Better yet, order a discounted subscription by putting in your details in the form below!