DEVELOPMENT
Breaking into Commercial Property
Commercial Sectional Title often an under-utilised form
BY MICHAEL BAUER
When sectional title property is mentioned, the majority will think of residential sectional title units, which has over the years become a very healthy segment of the property market( and is still growing). One form of property ownership that can be a very good investment option, and is under-utilised, is sectional title commercial property. This could include office suites, light industrial units or retail space, particularly for small to medium businesses who in all likelihood wouldn’ t be able to afford the purchase of a whole building. Nor would they want to invest millions in( or be able to get finance for) a whole building or business park as this could possibly over-extend them financially.
Successful investment in commercial property would depend on the usage of the building but often buildings such as light industrial units, for example, could find takers of 250m2 to 500m2 easily. It is not always viable for businesses, particularly small to medium enterprises, to buy large premises worth millions, and then have the problem of subletting areas they don’ t need and managing the rentals as well as the property.
Mixed Use Refurbishment There are many instances where commercial buildings will be owned by one person or company, but as soon as a building becomes dated and might need renovation or large sums of money put in to update it, the owner will want to sell it to rid himself of the burden. Selling a whole building can be troublesome however
as there is not always a market for large premises, and the easiest way to achieve the right selling price( and sometimes even get a higher rate for the whole building) is to subdivide it into sections and sell the smaller units off as sectional title, as the chances are higher that there will be a market for these.
If one were to use the same principle as many residential investors and buy small commercial sectional title units, in high demand areas that are close to public transport and amenities, the rentals could be steady and possibly more lucrative. Businesses tend to rent premises for longer periods at a time and tend to be less demanding in terms of additional fixtures or features of the property. An office block or light industrial park can be quite plain but because it is functional and in the right area, will be in demand. In addition, if one were to find units close to a hospital for example and turn them into medical suites, the chances are high that these spaces will be filled with professionals who would have no problem in paying their rent each month. There are various options available in commercial investment, and the first step is to establish what the investment needs are. It is first prize for a business to own their own premises but there will always be a need to rent for the first few years of their existence and the leases are easier to manage in commercial property. If a tenant does not pay their rent, it is easier to cancel the lease and evict the tenant than it is with residential units.
RESOURCES
IHFM
36 MAY 2016 SA Real Estate Investor www. reimag. co. za