The industrial property sector continues to outperform the office, retail and leisure property sectors, and is considered by experts to be one of the safest bets for commercial property investments.
But how does one go about investing in this market? According to Tony Bales, an industrial property expert at Epping Property, industrial property can be purchased either in the form of directly held, which is the most widely used method of ownership, or listed property funds.
The latter, he explains, is a more liquid form of holding property, but also suffers from the fluctuations of the stock market. “Directly owned property can be bought either through a tender, an auction or private treaty, where the sale is handled mainly by brokers specialising in industrial property.
Listed property is bought through a stockbroker or investment adviser.” He says before investing, you must determine where you would like to invest. “The most proven long-term areas are the major industrial nodes in the larger cities. Drive around the area and make sure you are familiar with it.
Next, contact industrial property brokers (more than one) who specialise in that specific area. Ddiscuss with them what they think would suit you and what is the type of industrial property in highest demand by tenants.”
The next step, Bales says, is to view the properties for sale and obtain as much information about them as possible, before looking for finance. Investors should also evaluate their favoured properties and consider factors such as:
● The location of the site.
● Accessibility and road systems.
● Age and condition of the buildings.
● The building materials used – for example, asbestos roofs will require replacing.
● Loading and offloading areas for trucks.
Potential investors should also consider the flexibility of the premises as those that are specialised have a smaller chance of securing a tenant.
They must inspect the title deeds, the formal legal description of the land,; the municipal valuation; town planning conditions and the zoning certificate, a copy of the approved building plans and copies of all current leases.
“Be sure to also conduct an expense analysis,– taking into account the municipal charges, electricity, building insurances, repairs and maintenance estimate, as well as the month-to-month administration and rent collection charges,” Bales says.
If the property is sectionalised, they must ask to see the latest financial statements of the body corporate and a copy of the rules of the sectional scheme.
“Also check with the managing agents all is in order and no special levies are due.” Furthermore, he cautions newcomers to not underestimate the tedious process that has to be gone through to arrange finance.
“All banks arranging non-residential finance go through different in-depth processes to evaluate non-residential loans. The purchaser will have to submit mounds of documentation relating to themselves, as well as the property and its tenants.
“Allow for at least 21 days (at the quickest) for loan approval and, depending on the bank, you may be referred to a nonresidential lending division. Always go to more than one bank.”
Bales says some standard industrial financing norms to be aware of include:
- About 35% of the pre-VAT purchase price will be due as a capital down payment on the date of transfer.
- The lending rate on an industrial property is not as low as residential loans
- Loans must be paid off over 10 years, as opposed to 20 years for residential.
Finally, aspiring industrial property investors should read the small print. “There may be hidden clauses such as penalties if a property is sold within the first three years, or that one needs to give the bank three months’ notice before a bond can be cancelled.”