ST : How to invest in a non-residential property

23 Jan 2011,
How to invest in a non-residential property

A clear budget and a firm grasp of how much one can sensibly borrow are essential before deciding on which commercial or industrial property to buy.

It is also important for an investor to visit the site to ensure that he is comfortable with the existing tenant mix and to choose, if possible, a trade that he is already familiar with. This will allow him to use the unit for his own purposes should the economy head south.

Experts say that while sophistication is not a prerequisite, investors will need to arm themselves with a good understanding of the market dynamics and practices.

These tend to differ from those of the residential sector, since the commercial and industrial sector is more specialised.

International Property Advisor chief executive Ku Swee Yong said that once an investor is convinced that he has the appetite for these segments, he should find a specialised agent to assist him.

'You would not only require a trustworthy agent to guide you to the appropriate properties, but also to assist with the rentals after you have invested,' he said.

Other professionals - such as specialised consultants or brokers - can also help provide comparative advice on which sector might be most suitable for your budget and assist in obtaining financing assistance.

In addition, investors should also determine the price-tier they are keen on investing in, as the pool of potential tenants will be different for each.

DTZ's South-east Asia research head, Ms Chua Chor Hoon, added that investors with no prior knowledge about the segment can read up more on economic and property market reports to learn more about current and future trends.

They can also visit the properties and their surroundings, ascertain the rental demand and possible rental returns, recent transacted price and historical trends. They can also speak to the banks on how much they can borrow and applicable mortgage rates, she added.

Investors should also find out the different subclassifications for each sector - especially for industrial properties - which determine the uses that are allowed for the space. This is important as it will determine the rentals achieved.

It should be noted that unlike the residential sector - which has the population as its potential demand base - commercial and industrial properties, being business premises, are more susceptible to economic cycles and might be more adversely affected during a recession.