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Commercial Property in Demand

As we know, the high interest rates are impacting the entire South African economy. However, commercial property is still in demand.

Residential property has almost reached a standstill, and investors in the residential sector are asking why commercial property is in demand?

On Property Investor Network, we often discuss residential property and even though now it is a great time to buy residential, the commercial property sector can no longer be ignored. We believe the residential investor needs to understand the commercial concept to be able to invest.

So, why is commercial property in demand right now?

One reason for this is income growth.

As we’ve said before, in commercial property the investment is for income, the brick and mortar doesn’t have value in the same way it does residential.

So, while in residential we often speak of capital growth of the asset, in commercial property we speak of income growth potential.

In commercial property there is, of course, direct ownership, just like in residential. However, there is also the option of listed property companies, which is a form of investment without any direct ownership.

Right now, there seems to be excellent demand for direct ownership, which means purchasing commercial property for the benefit of the income growth and potential.

In certain cases the view of continued growth in demand for commercial rental is simply due to the limited land available for development. Yes, we heard this in residential previously. However, as long as there is demand and not enough development, there is bound to be many clients that need to rent for commercial reasons and will pay better prices when there is less availability.

Taking into consideration that with all property development, though much faster these days than in the past, it still takes time and in the mean time clients in commercial sectors still need places to trade and make income.

This is without even considering the issues of zoned land, re-zoning and availability of services, which often take even longer than the development itself.

There are also other reasons that investors are starting to look at commercial, such as the tax-deductions that don’t exist in residential, the length of leases (3 to 5 years and even 10, 50 or 100 years), and the fact that they don’t have to deal with the Rental Housing Act. In other words, they have no hassles with laws that are applicable to the residential property investor regarding tenants’ rights. That alone makes some investors very happy, if they had bad tenant experiences.

Other factors also include that commercial property prices may be even below cost of replacement. In residential that is just very rare unless of course the market is in a serious slum state.

In summary, right now commercial property is in demand and investors are looking closer at all the options. To many residential property investors, commercial property investing sounds very difficult, add to that some highly educated economists writing in the papers some highly complicated articles and residential investors started to think that commercial investing is rocket science and out of their reach.

This is not true. Though commercial property investing requires specific knowledge to this type of property, it can be learnt.

That is why we invite you to join the Commercial for Beginners Course that starts on the 1st of August.

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Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved.

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