This month I’m going to reveal the options that are available in commercial properties.

 

• § Shop-houses and shop-offices

 

Shop-houses and shop-offices are the first to come to mind when people talk about commercial properties. This is not too surprising as it is the most common and also the original commercial property.

 

There are a few plus points about shop-houses and shop-offices. The first one is that there are no hidden cost involved. Everything is out there in the open. The maintenance cost is low and there are no service charges to be paid. Next, it is totally within your control. You can rent out to whoever you like (or don’t like) and you can renovate the place as you wish. In fact, you can even extend the space if you want to. This is very common for ground floor units, particularly the corner units. You can even ‘borrow’ parking lots at night to add the available space (refer to the typical Mamak restaurants at night!).

 

The main disadvantage here is that you cannot control the area. Your neighbour may rent out the place to some ‘undesireable elements’ and there is little you can do about it. The area can be an eyesore and you can do very little to correct the situation.

 

Next, it is very likely that the top units (second floor and above) would remain empty as very few tenants would be willing to walk up and down the stairs on a daily basis. So yes, the lack of elevators is a serious problem for shop-houses and shop-offices. Parking may also be a problem here.

 

• § Strata offices

 

Strata offices are usually the cheapest commercial property. You can get one for RM300,000 or thereabouts. Because of the low price, the demand is usually good.

 

Strata offices also give better image than shophouses. They are usually better maintained as well. They may have support facilities which include car park, elevators, guards and maintenance personnel.

 

The main disadvantage here is that there are often multiple units for sale or rent at any one time. As they are located in an office building, it means that there are other units – which can be a hundred or more – just like yours looking for buyers or tenants. This is particularly so when the building is just completed. Obviously, the competition is tough at these times. The buyer or tenant can practically name their price. If you are not willing to meet it, there are plenty others who will be willing to match the price. This explains why your strata office can be empty for a long time, perhaps even years!

 

There are also numerous charges involved – maintenance or service charge and parking charge. This can come up to a hefty figure each month. You will also need the developer’s consent when you want to sell. Though not a big problem, it just adds to the hasle.

 

Next, you cannot modify the place as you like and certainly cannot add to the available space (unless you buy the adjoining units). There are often a lot of do’s and dont’s here.

 

And unlike shopshouses, you cannot rent out advertisement boards or the rooftop when you own strata offices. All these mean that you will be unable to increase the incomings easily.

 

• § Strata retail

 

Generally, strata retail is best avoided. Why? Strata retail combine the worst of two worlds! The same problem that applies to strata office applies here – there are often numerous other units competing with yours for business. That’s one. Next, the main disadvantage of shop office – you cannot control the tenant mix – also applies here. The management can mess out on the tenant mix which among others can lead to too many similar outlets selling the same item. Worse, there is little you can do about it.

 

That is bad but wait, because it gets worse! You are now also in competition with other shopping complexes, which are usually newer, grander and better managed!

 

Not surprisingly, there are not too many success stories when it comes to strata retail. In fact, I know of only one – Sungei Wang Plaza – that can be termed as a resounding success. Sadly, there are many strata retail that have fared poorly and caused their investors sleepness nights and lost money.

 

• § Office buildings

 

You can also invest in office buildings. Naturally, the money involved is a lot more than investing in offices. But there are additional opportunities of adding to your cash inflow here that is not available elsewhere. For starters, you can rent out the walls and roof tops for billboards and advertisements. You can even sell the naming rights to the building!

 

• § Retail complex

 

Of course, you may step up from strata retail to actually owning the whole retail complex. Needless to say, this is a business by itself and the factors would be far too complex to discuss here.

 

• § Land

 

The people selling land would always quote the saying that God is not making any more land (this statement does not apply to Singapore!) so you should buy land.

 

Well, our forefathers may have made money from vacant land but those days are gone. Land has a few minuses: they are difficult to finance, margins are low, returns are low and you are still taxed as much as any other property. I think just about the only time you can make money from vacant land is when another party is willing to buy that piece of land from you at a hefty premium. Usually this other party is the government. That aside, I fail to see why anyone would want to buy an empty piece of land that sits down there doing nothing but drains your bank account.

 

Having stated all these, I must admit that I own a couple of plots of paddy field back in my hometown. Some years ago, my cousin wanted to sell his paddy field. My mom asked me to buy over so the property would remain in the family. So I bought the field. A couple of years later, another cousin wanted to his plot. So I bought again. That made me the proud of owner of two plots of paddy fields. That was over fifteen years ago. The problems are that I don’t quite know where the fields are, I’ve not received a single cent as return on my capital employed (to use a fancy finance term for saying I lost money) and I’ve not even seen a single grain of paddy from my fields! I’m sure somebody is planting something there but I certainly am not the one benefitting from it. This perhaps explains why I don’t buy paddy fields anymore! (Hey, maybe I should call Tony Fernandes and see if he’s interested in my paddy fields. I think the size is just about right for the next LCCT.)

 

So there you go: the options available in commercial properties.

 

Picture courtesy of: sherimountain

 

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