Commercial Property Investment in Bangladesh: Key Considerations

The real estate market in Bangladesh has seen significant growth in the past few years. This can be attributed to factors such as increased urbanization, higher incomes, and a growing middle class. According to statistics from the Bangladesh Bureau of Statistics, the real estate sector’s contribution to the gross domestic product (GDP) for the fiscal year 2022-23 was 7.93%. This marks a significant increase from previous years and highlights the sector’s growing significance in the economy. Therefore, investing in real estate is a smart decision, especially now.

Purchasing commercial property has the potential to be an excellent investment. But buying a commercial property can be challenging due to the number of factors that must be taken into account, including the yield’s appropriateness in comparison to the larger market, the property’s location, the existence of a current tenant, and the conditions of that lease. Therefore, you must first learn about the important factors to take into account while investing in commercial property in Bangladesh.  

Smart Investing: Key Considerations for Commercial Property in Bangladesh

When buying a commercial property, you should be asking the right questions and considering several factors, especially in Bangladesh. Investing in commercial real estate is different from residential properties and can be challenging to sell during a recession. It is crucial to understand how commercial property investing works in this area. This article delves into essential considerations for investing in commercial real estate in Bangladesh.

Commercial property refers to any real estate used for business purposes, such as structures, plots of land, or rental homes that generate revenue. It can be a lucrative investment choice for many! To ensure it’s worthwhile, you need to consider the following factors-

Identify the Purpose

The initial step is to determine the investor’s motivation for purchasing commercial real estate. You must first understand what you want from your purchase and what your purpose is because commercial property is a financial asset. The investor’s property search criteria become clear and defined if they are aware of what they hope to achieve with the acquisition. When acquiring a property, you should consider the following: 

• What kind of location do you need?
• What is the state of your finances in terms of cash, credit, and ability to make a down payment?
• What is your tolerance for risk?
• What kind of time and work are you prepared to put into the house?
• Are you ready to invest in or make a purchase of this property?

Study the Market

Whatever kind of investment decision you decide on will be influenced by the goal of your investment, therefore, be familiar with the essential real estate terms.  There are many different kinds of commercial real estate in Bangladesh to think about, and at least one of them will match your risk tolerance. Offices, shared workplaces, contiguous office space, industrial buildings, warehouses, and manufacturing plants are a few of these. Retail locations, malls, and huge white goods merchants are another. Your personal objective will determine the kind of property you select. It’s important that you talk about this with your real estate agent to assist you narrow down your choices for appropriate commercial properties.

Make a Budget

Even before beginning the process of preparing to purchase, commercial space financial management must be secured. This establishes the financial parameters and shows if the undertaking can be successfully completed. It is not ideal for an investor to discover themselves in financial difficulty after having found a desirable piece of property. This holds true for any kind of commercial real estate purchase. Setting a budget provision for the purchase price, transaction costs, government taxes, stamp duty, maintenance/upkeep, and any other period charges is crucial for an investor. A list of these costs will make it easier to use the elimination method to make sure you are just choosing from the kinds of commercial properties that are within your price range.

Surprise Cost

Surprise expenditures are a major factor you must also take into account. 

• Will the property’s operation and upkeep be more expensive now than they were under the prior owners or tenants?
• How old is the structure, and do you need to make room for new machinery and plants? 
• Exist any potential site contamination that could require expensive treatment or disposal? 

Before purchasing a house, consider these potential expenses and include them in the purchase price. In the unlikely event that you find the perfect property, it’s a good idea to set aside some cash for these unforeseen expenses. 

Location and Positioning

Finding a location with a lot of foot traffic and street attention might be crucial for your possible tenants’ needs when dealing with property. To ascertain whether or not a region has a higher earning opportunity and higher demand, research must be done into the local market sector. The proximity of this location to the target market and potential tenants is usually the deciding factor. 

Your study should not end here; any possible business investment should take into account the following aspects that may affect the property’s location and value. Additional crucial elements to take into account are location, neighborhood, and suburb access, demographics and the general population, competition, accessibility to public transport, and suitable parking. The variables will differ based on the needs of the commercial property.

Local Zoning and Region

To gain a better understanding of the kinds of commercial properties that are permitted, it is crucial to be aware of the local zoning rules, laws, and regulations of the various regions in Dhaka. You cannot simply choose to purchase a commercial property and assume that leasing it to a manufacturing tenant will allow you to comply with local zoning restrictions. Making the process of choosing investments harder than it has to be is unnecessary. Instead of going through interminable red tape to obtain the required approvals, move ahead if the property you want does not comply with local zoning regulations. Additionally, you should visit the website of the local government, consult with property developers and commercial banks, and look into potential future developments that could affect your potential investment property.

Find Potential Property

Investors now need to choose the ideal property in their target market after taking the preliminary steps. Now it will be much simpler to choose a good property that fits your budget and will provide the needed ROI. Investors will discover properties during this search that may typically appear to be a decent investment. However, it is not the best course of action if it does not fulfil the investor’s initial purpose for purchasing.

History and the Current State of the Property

Always conduct research to learn about the asset’s past performance and that of nearby comparable properties when thinking about buying a commercial asset. Analyze the capital growth performance and yield; while previous performance is not necessarily a reliable predictor of future results, it does provide a useful idea of the value of a region and a particular asset class. Investors should consider the previous prices of the property, contrast them with current prices, and gauge the rate of value growth to assess capital growth performance. It’s also advisable to take into account outside variables that could affect how well the property performs, such as zoning regulations, economic fluctuations, and infrastructure growth.

To really grasp the condition of the property before making an offer, you must physically inspect it. Commercial property in decent condition will inevitably attract more potential renters. As a result, you must also take into consideration the property’s existing condition. 

Modification Restrictions

Most jurisdictions will have rules and legislation that place limitations on modifying a property’s exterior or interior. The regulations are also relevant to your possible tenant, so it’s important to be well-versed in them and to have specific needs. 

The management details are often available from your property manager, and they are outlined in the annexure section of the tenancy contract, but if you’re unsure, you should conduct your own research or hire a conveyancer or commercial property specialist from Mir Real Estate for proper advice.

Review Financing Terms and Agreements

A business property requires extensive financing. An expert in finance or a business broker will be needed for this process. This is done to guarantee that the funds are distributed in accordance with a reasonable serviceability evaluation. By doing this, you can ensure that your ability to pay back the loan in light of the revenue and ongoing costs of the business property is practically assured. Due to the greater degree of risk associated with this type of property, interest rates for commercial properties are higher and loan-to-value percentages are significantly lower. Therefore, you must have your financial affairs in order with your business tax returns, creditor reports, and income statements before requesting funding. 

Obligations, Limitations, and Lawsuits

Before making an offer on a property, it is essential to ensure that there are no liens or title restrictions. Examples of potential issues include contractual violations, partner conflicts, environmental actions, shareholder conflicts, and class lawsuits. Mir Real Estate can guide you through this complex process. Identifying and addressing these issues can help you avoid complications and potentially negotiate a better price for the property.

Commercial Lease Terms

When purchasing a property, a solid commercial lease term is crucial. The agreed lease must be significant enough to render the purchase economically feasible and should be long enough to generate a significant return on investment. As there is more risk involved, shorter lease durations are frequently more expensive. Higher eviction rates could increase repurposing expenses, the chance of missing rent payments, and tension between you and the property manager. The objective is to guarantee that you may make an anticipated income over a longer period of time, albeit at a more reduced rental yield. Additionally, a strong renewal procedure will guarantee the tenant may keep the space for another period when the lease expires. Additionally, it’s crucial to make sure the lease is updated regularly.

Investing in a commercial property is a significant undertaking that should be approached with caution. To minimize risks and maximize returns, it’s important to follow a methodical approach. As an investor, conducting thorough research and examining all relevant factors is crucial. With the right strategy, you can make a profitable investment without taking on excessive risk. If you need assistance in this process, Mir Real Estate is a great option to consider.

Summary

When purchasing commercial spaces as an investment, the goal is to maximize the Return on Investment (ROI). This process differs from traditional real estate purchases as it requires a meticulous and methodical approach, with thorough research being essential. Before an investor can purchase a business space, they must investigate the acquisition process and the asset’s potential. The entire procedure requires comprehensive planning, including an assessment of risk factors, legal asset protection, traffic conditions in the area, property upgrades and maintenance, and more.

When looking to acquire commercial property, it’s important to define your goals and determine what you want from the investment. Researching the market and creating a budget that takes into account unexpected expenses is crucial. Additionally, assessing the location and considering local zoning laws is necessary. Once a potential property is identified, it’s important to investigate its current condition and history, as well as any potential restrictions, funding agreements, liabilities, limitations, and legal issues. Finally, you can draft a lease and make the investment. If you are looking for expert advice on commercial property investment, Mir Real Estate is a great option for you to consider. Their experience in property acquisition makes them a reliable resource for guidance.

Frequently Asked Questions (FAQs)

• What sets Commercial and Residential Real Estate apart?

Residential real estate is utilized solely for personal living spaces. Any property employed for commercial purposes is called commercial real estate. Hospitals, manufacturing facilities, storage facilities, retail establishments, office buildings, and other business establishment locations are examples of commercial real estate.

• Is Commercial Real Estate a smart investment?

Commercial real estate may produce outstanding profits and sizable regular cash flows, and returns held steady during the economic crises of the previous ten years. 

• What are the primary Real Estate categories?

The basic types of real estate include residential, commercial, industrial, and land. 

• What are the drawbacks of commercial property?

Most people who wish to invest in commercial real estate are put off by rules and restrictions. Taxes, purchasing mechanisms, and maintenance duties for commercial buildings are hidden in layers of legal jargon and can be hard to grasp without obtaining or hiring professional knowledge.

• How many people work in the real estate business?

This industry employs over 2 million people directly or indirectly.