CUT AND KEEP
>Shouldbusiness owners rent, leaseor buy
On the
commercial
side
W
hen
fashion
entrepreneurs Paul
Tamand Caitlyn Lim
decided to turn their
small online business into a full
fledged physical store, they thought
long and hard about whether
they should rent or buy their
business premises.
“We initiallywanted to buy,”
said Tam, adding “We found an
appropriate unit that was up for
sale or rent, andwhenwe
consulted our lawyer, he advised
us to rent.”
Whether you own a bookstore,
hair salon or any other business,
the decision to rent or buy the
premise you run your business
in, is a complicated one. If you
find yourself in a situation
similar to Tamand Lim, here
are five important factors
experts urge you to consider
beforemaking your decision.
Cash investment
To buy a commercial
property, youwill need to
have a significant amount
of capital in hand to execute
the deposit (usually 10%of
the total price). Unless one
has themeans to execute
the purchase in one go by
cash, a bank loanwill have
to be secured. Compared to
renting, more often, one’s
monthly loan instalments
are higher. Financial experts
say that if you are not in the
position tomake such a large
initial investment or secure a
bank loan, renting allows you
“affordability”. Renting does
not require one to come upwith
a lump sumas deposit. Still,
one will need an initial rental
deposit andmonthly rent.
Even so, renting will demand a
much lower capital outlay
compared to purchase.
Time flexibility
It is faster and easier for
a business owner to rent a
commercial property rather
than buy it. This is due to the legal
processes involved. For example,
a sale and purchase (S&P)
agreement will take longer than
drawing up a tenancy agreement.
According to Andy LowHann
Yong, a partner at Low&Partners,
the legal transactions involved in
purchasing a commercial property
through sub-sales generally takes
threemonths or more. These
depend on the following factors:
• whether the business owner is
buying the property by cash or
through a loan;
• whether the property is subjected
to state consent;
• whether the property is held under
amaster title or individual title; and
• whether or not the construction of
the property has been completed.
The vacant possession of the
property is usually delivered to the
business owner when the
transaction is completed, which is
upon the vendor/seller’s receipt of
the full purchase price from the
purchaser or purchaser’s bank.
On the other hand, the legal
process involved in renting a
commercial property is relatively
faster. “As long as the terms and
conditions of the tenancy
agreement are agreeable
by both parties, the vacant
possessionof the property
is delivered to the tenant
upon execution of the
tenancy agreement, along
with the payment of the
deposit and first month
rental,” Lowadds.
Fixed costs
Unlike renting, you can
roughly estimate or
forecast your yearly
expenditure if you
purchase your property,
as changes can be
expected. For example,
your lease termmay
expire and theremay be
different clause factors
and terms implemented
within a lease agreement
that may be altered.
This includesmonthly
rental amounts and
maintenance fees.
Level of
control
Lowexplains that if you rent
a property for a period that is
less than three years, it is
known as a “tenancy” under
theNational LandCode
(NLC) of 1965, which applies
to PeninsularMalaysia. Under
this law, the landlord can sell
the property to a third party
without the tenant’s (leaser’s)
knowledge or consent. The
newpurchaser also has the
right to ask the current tenant
to vacate the premises even
though there is a valid tenancy
agreement to occupy it.
“The tenant in this
circumstance can take action
against the previous owner
for a breach of the tenancy
agreement. However,
the tenant will not be able to
continue occupying the unit
and has no good defence if the
newowner insists on
exercising his rights for the
tenant to vacate the premises,”
Low informs.
If the business owner owns
the commercial property,
hewill not have thisworry.
When a business owner is
renting the property formore
than three years, this is known
as a “lease” (under theNLCof
State
Purpose-Built Office
Shopping Complex
Total Exist-
ing Space
(‘000 sq m)
Available
Space
(‘000 sq m)
Total Exist-
ing Space
(‘000 sq m)
Available
Space
(‘000 sq m)
WP Kuala Lumpur
7,114.69
1,582.78
2,410.00
396.98
WP Putrajaya
202.76
89.48
68.50
15.54
WP Labuan
49.12
12.95
26.06
0.44
Selangor
2,761.08
782.13
2,969.06
502.34
Johor
659.91
186.38
1,685.46
480.26
Pulau Pinang
842.20
203.57
1,479.11
460.57
Perak
236.24
27.03
723.29
88.70
Negeri Sembilan
124.79
18.30
382.55
65.50
Melaka
208.46
62.34
363.80
70.17
Kedah
153.79
17.37
425.24
92.46
Pahang
179.34
45.84
259.32
58.79
Terengganu
108.32
3.37
106.98
24.98
Kelantan
170.82
10.44
222.85
23.47
Perlis
40.50
0.00
69.61
3.60
Sabah
497.90
73.27
532.78
63.66
Sarawak
414.27
39.29
612.03
180.55
MALAYSIA
13,764.17 3,154.54 12,336.64 2,528.00
SUMMARY OF AVAILABLE SPACE INCOMMERCIAL
BUILDINGS AS AT Q3 2013
1965). “If a lease is duly registered
with the land office, then the lease
interest is endorsed on the title
deed and it is publicly known to
any third party. This arrangement
ismore beneficial to the business
owner as the subsequent sale of the
property after the leasewill be
subjected to the lease-terms. In other
words, the newowner has no right to
ask the tenant to vacate the property
as his purchase is subjected to the
lease,” explains Low.
Asset appreciation
When you buy a commercial
property, you automatically have
another business, as you become a
proprietor and your property
becomes an asset. If your intended
business does not take off as
planned, you can always sell
off the propertywhen the real
estate value increases, tomake a
profit or rent it out.
“Generally though, most
companieswould rather invest
theirmoney into running their own
businesswhere they canmakemore
money faster, instead of getting
their capital and banking facilities
tied up in costly, fixed, immovable
assets like property, where the
appreciation is only 5% to 10%per
year,” saysMilanDoshi, renowned
property and investment guru.
However, when you lease a
property, anymoney that you
spend on themonthly rental or
maintenance does not add value
or create any asset for you in the
long run.
what the experts say
Property guruMilanDoshi’s rule
of thumb is to rent in an area
whichmakes business sense
unique to the business. This
income can be invested in assets
and optinoswhichmake
investment sense. “Let your
business buy your assets …. it is
not necessary to buy your own
business premises.”
He further advises: “With the
current market demand for office
space, I advise renting instead of
buying, because the over-supply
in office unitsmakes it affordable.
Moreover, you have the flexibility
tomove every fewyears. For
retailers, since their rentals are
much higher, the advice is to buy
instead of rent.”
“With the current market
for offices, I advise to rent
instead of buy, because
the over-supply in office
units makes it affordable.
Moreover, you have the
flexibility tomove every
few years.
For retailers,
since their rentals are
much higher, the advice
is to buy instead of rent.
”
Please email your feedback
and queries to:
* Tableof information courtesy of
SUMMARY OF SPACE AVAILABILITY INCOMMERCIAL
BUILDINGS FROMQ3 2012 to Q3 2013
15,000
12,000
9,000
6,000
3,000
0
Total Space (‘000’ sq m)
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
24.0
23.5
23.0
22.5
22.0
21.5
21.0
20.5
20.0
19.5
19.0
Availability Rate (%)
Purpose-built Office (‘000 sq m)
Purpose-built Office
(Availability Rate %)
Shopping Complex (‘000 sq m)
Shopping Complex
(Availability Rate %)
*Graph courtesy of
FEB 14, 2014
