Business Owners Should Aim To Own Their Premises

Business Owners Should Aim To Own Their Premises

Private Property South Africa

Many small to medium size business owners wonder whether it is better to rent or to buy the premises from which they operate, says Bill Rawson, Chairman of the Rawson Property Group.

“If your business does not require a high profile or a visible position, it is almost always more beneficial to buy, especially if the property contemplated is a residential building which has been or could be rezoned to have commercial rights. This, however, only applies if the buyer plans to hold the property in his own name for at least five years.”

“One of the obvious major advantages of buying now,” said Rawson, “is that the interest rate will be at its current low level — which may be raised in early 2014, but not by a large amount. The general prediction is that it will probably not rise by more than 1% or 2%.”

Commercial property rentals are rising steadily – an increase of 8 to 10% per annum is now almost standard and this means that five years down the line a tenant may be paying up to 60% more in rental costs. As an owner occupier his payments are fixed, said Rawson.

South African banks, added Rawson, are now operating in strict compliance with the National Credit Act and will almost never issue a bond on a commercial building for longer than ten years. This means that the buyer has to be able to pay roughly double what he would be paying each month on a 20 or 25 year residential bond. If, however, the building was previously zoned residential and has since been rezoned, it is quite possible that the banks will consider bonding it on a residential basis – especially if the owner or a tenant lives in part of the building.

“The advantage of the shorter life span of the bond is that after ten years or so it is fully paid — leaving the owner debt free.”

“My prediction is that over the next two or three years such properties will appreciate in real terms. Property values tend to be cyclical and by 2016 I expect that we will again be seeing steady annual value rises. If you can afford it, now is a good time to secure your own premises, no matter what sort of business you have.”

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