Five mistakes to avoid when buying commercial property

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“Buying commercial property is a long-term commitment and a major investment for any business, therefore such a decision needs to align with the business’s growth objectives,” says Axel Cramer, Head of FNB Namibia’s Commercial Property Finance.

“Being in a position to buy commercial property is an exciting phase for a business as this creates new possibilities. In some cases, commercial property buyers make impulsive decisions based on emotions rather than sound business objectives. During the decision-making process, it is important to remain focused on business needs and not overlook the finer details which could have long-term limitations on business growth,” he advised.

Cramer states that paying attention to some of the certain areas could help commercial property buyers avoid costly mistakes. The first is commercial use, title deeds and town planning restrictions. Here he advised to ensure that the property is zoned for commercial use and one should investigate any potential town-planning restrictions for the chosen area. This, he said, will give the buyer a good sense of whether your business could face growth restrictions in future.

Second on Cramer’s list is that the size of the property must accommodate business growth. “Depending on the type of business, you need to consider the business’s growth potential and whether the targeted location could accommodate such growth.  It is not advisable to buy property to only sell a few years later because you could potentially lose money and sourcing new property comes with additional costs such as agent’s commission and transfer costs.”

Thirdly, Cramer touched on location and accessibility. He remarked that a location might be better suited to the business but not necessarily convenient or accessible to employees or clients. “This could be detrimental because you could end up investing more resources in transport or losing talent due to the inconvenience of the business location. Similarly, you want to ensure easy accessibility for your clientele since this has a direct impact on the future of your business. There needs to be a fair balance.”

Fourth is that the buyer should not overpay. The objective of every property seller is to make substantial profit from the sale of their property. This is why commercial property buyers need to understand and research the potential value of their targeted property and negotiate a reasonable price. Banks also play an essential role in this regard because they use independent property evaluators to ensure that the buyer has a good idea of the property’s value.
Lastly, Cramer advises understanding upfront and ongoing costs. Similar to buying residential property, there are upfront costs such as transfer and registration costs that need to be settled by the buyer during a commercial property transaction.

Included in operational costs are insurance, security, rates and taxes, water, electricity, cleaning and provision for maintenance which needs to be taken into consideration.

“Acquiring commercial property is a significant step in the life cycle of any business and it is important to ensure that all factors are taken into consideration. Business owners should enlist all the necessary help to ensure that they make the right decision, especially in view of the long-term nature of property investments,” advised Cramer.