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Done correctly, investing in a commercial property in Bangladesh (BD) can be a lucrative venture as these commercial assets can offer a superior return on investment over traditional residential real-estate. However, one should note that with higher rewards inherently comes higher risk. This article by BestBari will look at what to look out for when buying commercial property in Dhaka, Bangladesh.
A lot of factors need to be considered when buying a commercial property. There is always a risk that a busy location with heavy foot traffic today may become an empty ghost town in the next few years. In addition, your cash flow will be impacted negatively due to non-paying tenants, ongoing maintenance, structural repairs and so on.
A commercial property is often harder to offload, and this may be exacerbated during the slump of a property cycle. That’s why property investors need to have a clear understanding on how commercial property investing works in Dhaka, Bangladesh.
It’s crucial to understand the factors to consider when buying commercial real estate differ from that those of purchasing residential property. This awareness will permit you to compartmentalise your emotions and help you approach this purchase with the perspective of a pure data driven decision.
If this is your first foray into commercial real estate, like any business decision you wouldn’t rush into a deal blindly without doing your due diligence. Similarly before signing the contract there are essential factors you would need to take into consideration so you end up with the best commercial property your hard earned takas can buy.
Below are some key points every investor in Bangladesh should consider before committing to investing in commercial property.
Purchasing a commercial property require a significant amount of due diligence.
Research the commercial property that suit your strategy
Your commercial property is an investment asset and as such you would need to first know what you want out of your purchase and that is your objective. The purpose of your investment will help determine the type of investment decision you make. For example, your goal could be to purchase an outdated retail space or office to renovate and sell it for a quick profit. Alternatively, if you have a longer-term approach tied in with your retirement you possibly will look for a deal that will give a consistent steady income over the next five to ten years such as a shopping centre or even a warehouse premises with long established tenants.
There are many types of commercial real estate in Bangladesh to consider and there will be at least one to suit your risk appetite. Some of these are:
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- Offices, contiguous office space and shared workspaces
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- Industrial properties, logistics facilities, warehouse and manufacturing plants
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- Retail spaces, shopping malls and large white good retailers
The type of property you choose depends on your personal goal. Make sure to have this discussion with your real estate agent or your property local property guru from BestBari so they can build a tailored strategy to help identify your ideal commercial property options.
Working out a budget that is value for money
All investment venture requires money, and you must have disciplined budget planning before execution. This is similarly true for any sort of commercial property purchase. It’s critical for an investor to set a budget allocation towards the purchase price, transaction cost, government taxes, stamp duty, maintenance/upkeep and any other period expenses. A schedule of these sorts of fees will help the process of elimination to ensure you are only selecting from the right type of commercial properties that suit your budget.
Creating a strong budget will allow you to ensure your commercial property is viable investment.
Strategic location and positioning
When dealing with property, residential or commercial the saying “Location, location, location” is a mantra that holds even more weight with commercial premises. Finding a location with a high volume of pedestrians and street attention may be critical for your potential tenants needs. Research must be conducted into the local market segment to determine which areas have stronger earning potential and greater demand. The critical factor tends to be how accessible this location is for potentials tenants target market and customers. For example, if you are intending on purchasing a retail space and your target tenants are either a restaurant or small business you must ensure that the properties surrounding areas can realistically support your prospective tenant’s business.
Your research simply doesn’t cease here, any prospective commercial investment should consider the following factors influence the location and potentially impacting the property value. Other important factors on must consider are:
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- Accessibility and location the area and suburb
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- Population and demographics
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- Competition and surrounding suburbs
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- Proximity to public transport, and suitable car spaces
These factors will depend on the type of commercial property and its needs. Consider an industrial complex where access to public transport will be less of a relevant factor to consider when determining the right commercial property.
The location will dictate what commercial properties can operate on your premises.
Local zoning and region
It’s important to beware of what the local zoning rules, regulations and laws of the districts in Dhaka to better understand the types of commercial premises are allowed. You can’t’ just decide to buy a commercial property in downtown Gulshan and hope to lease it to a manufacturing tenant without breaching local zoning laws.
There is no need to make the investment selection process more difficult than it needs to be. If your desired property does not meet the local zoning requirements, then move on rather than going through endless bureaucracy to gain the necessary approvals. Furthermore, checking local government area website, speaking to your property developers, commercial banks and researching future developments that may impact your potential investment property.
Its far easier to avoid all this hassle and to speak to a professional legal expert or contact us BestBari to help navigate this step.
Specific zoning conditions determines permitted business types.
The current condition of the BD property
Much like residential properties, a commercial property in good condition will naturally lead to more prospective tenants. Before buying the property you must go walk through the property to truly understand what condition it is. Water ingress, concrete cancer, foundation failure, leaks and rotting structural beams.
These generally spell the death knell of any physical structure and will require significant repair cost or even a total demolition. A building inspection with a certified inspector can be contracted through BestBari will allow for a trained individual to help comb through every square inch of the property to uncover any of these issues and help you make an informed decision prior to signing the contract.
Additionally, the previous use of the property is just as crucial. Put yourself in shoes of a tenants who wants to manufacture food products, would they be will willing to lease a property that has been used for chemical manufacturing? A detailed history of shops or manufacturers that operated within the premise will be allow you to understand what kind of wear and tare the property has been under in addition to an indication of the type of future tenants, resale, and potential rental yield.
A certified inspector can help determine the true state of a commercial property.
Modification restrictions of the Commercial Property
In most jurisdictions there will be regulations and laws that dictate restrictions on changing the exterior of interior of a property. It’s crucial to familiarise yourself with the laws closely and have clear requirements as these restrictions will also apply to your potential Tennant. Your property manager will often be able to hand over the governance details and they will often be outline in the annexture section of the tenancy contract but if in doubt it still be to complete your own research or contract a conveyancer or commercial property expert from BestBari for proper guidance.
Historical financial performance
When deciding to purchase a commercial property, its important to obtain a clear history of the property’s financial statements and that of other similar properties. This will allow you to calculate the yield and capital growth and seek out under valued properties and maximise your investment. Understandably past performance is no guarantee of the future however it will allow for a benchmark. This data will also help you understand the current and future trends in the market, rent rolls, tenant profile, and any other information that may help you develop your investment strategy.
Current and Future Infrastructure Developments
Each district of Bangladesh has its own unique infrastructure that determines the growth and desirability of commercial properties. Government panels play a pivotal role in determine how spending will be allocated and what projects will develop in the area. These can include rail, roads, airports, hospitals, and universities. There is vast variety of information online shows infrastructure projects that prospective buyers can utilise to help make the correct decision or you can contact us to have access to one our experts at BestBari to help with the discovery process.
An area with strong infrastructure development potential will increase the demand for the type of property, for example the upgrading of a highway corridor such as the Jhenaidah-Bonpara-Haitkumrul would not only improve regional connectivity but also increase logistics efficiency and permit future warehouse and distribution centres to be built. This is due to most transport companies desiring easy access warehouses at a lower price.
Highway corridors and rail links promote the construction of logistics centred properties.
Encumbrances, caveats and litigation
Prior to purchasing a property you need to make sure it is free of any type of legal instruments and restrictions against the title. These can include breach of contracts, disputes between partners, environmental action, shareholder issues and class actions. These can severely be detrimental to the property value and can be used to avoid a headache or help renegotiate a fairer price and our commercial property experts at BestBari can help navigate this complex area.
Review financing terms and agreements of your Bangladesh Home Loan
It’s well known that financing a commercial property to be more a involved process in comparison to funding a residential property. This process its often involved and will require the help from a finance specialist or a commercial broker. This is to ensure that the funds are provided based on a realistic serviceability assessment.
Doing so ensures that you can realistically afford to make loan repayments relative to the income and ongoing expenses of the commercial premises. Interest rates on commercial properties and significant lower loan to value ratios are applied due to the higher risk nature of the property type.
Before applying for funding, its very important to have all your finances in order with your business tax returns, creditor report and income statements failure to do so will delay the credit approval process and may deter the lender from proceeding with an application.
Scenarios with the commercial lease term
A strong commercial lease term assist in determining the type of commercial property an investor will proceed on. A savvy investor must endeavour that the agreed term is substantial enough to make the purchase commercially viable and extend long enough to provide a strong return on investment.
Shorter lease terms are often priced higher to reflect the risk involved. A higher turnover of tenants could result in significant repurposing costs, potential missed rent and friction between the property manager and yourself. The goal here is to ensure you can earn an expected income over a longer term albeit at a more discounted rental yield.
Furthermore, a robust renewal process will also ensure the tenant can secure the premise again for another term when the lease expires. It’s also essential to ensure the lease is updated continuously in line with the local districts regulation requirements to ensure protection from litigation and our legal experts at BestBari can help you with this process.
A longer lease often signed with a discount will ensure stable long-term cash flow.
Buying a commercial property is a monumental task and something that should never be rushed due to fear of losing a ‘great’ investment opportunity. A clear methodical approach outlined above will help ensure your risk minimisation strategy is successful.
An astute investor will endeavour to do the necessary due diligence and consider all the above factors to ensure they maximums their return on investment without taking on unnecessary risk to ensure a profitable transaction and BestBari can help you throughout your entire journey end to end.
This is why it is essential for new and existing investors of commercial property should consider working with specialists such as the trusted property consultants at BestBari, whom will not only introduce you to the highest quality new and used commercial property and but also connect you with other specialists such as banks, financial institutions
We hope you enjoyed reading this article published by BestBari.
If you would like to find out more about purchasing commercial property or flat sales in Dhaka contact us to book a complimentary consultation with one of our trusted property consultants.
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