Presenter: Lindsay Williams Guest(s): Gerhard Zeelie

The biggest investment many folks will make in their lives may be the purchase of a commercial property. Lindsay Williams asks Gerhard Zeelie, head of the commercial property finance at FNB, what the pitfalls are that investors should watch out for

LINDSAY WILLIAMS: Buying a property is a difficult decision, isn’t it?

GEHARD ZEELIE: Absolutely. It’s a very difficult decision for our customers, and it’s very important for them to actually decide what they are going to use the property for before they decide on buying a property.

LINDSAY WILLIAMS: Give me some examples?

GEHARD ZEELIE: The biggest differentiation that you can make - as far as property is concerned - is are you going to buy it to occupy yourself, or for your business, or are you going to buy it to lease out so that you can derive a rental income stream from it - in other words, for investment purposes? Once you’ve established that - then you can actually look at the financing options, and how you want to structure the transaction.

LINDSAY WILLIAMS: What about the actual building itself - will those two criteria then change the type of building that you should be buying?

GEHARD ZEELIE: Absolutely. For instance if you look at a "owner occupied" property - previously customers were very uncomfortable with buying properties in areas that they considered not to be good for commercial property. Now we see that more and more customers are actually thinking about commercial property the same way as they think about their residential properties - in other words is it close to my children’s schools, is it close to my customers, is there easy access? In other words it’s not about the investment itself - it’s actually about the functionality of it. The same way - if you walk into a residential house - you won’t discuss whether you’re going to get a good return when you sell it. You’re interested in the kitchen, the swimming pool and entertainment area - and that’s how customers are thinking about commercial property now as well.

LINDSAY WILLIAMS: I suppose that’s right - because you are spending a substantial amount of your life at that office. Does it have to be aesthetically pleasing as well, does it have to be attractive? It could it be a horrible face-brick thing on the outside - but perfectly functional on the inside?

GEHARD ZEELIE: That’s a very good point - exactly. If you own a panel beaters shop you might not be interested in how it looks at all - as long as it’s got functionality in terms of the equipment that you want to use there - so it should be absolutely fine. On the other hand if you’re looking at a property where you would want to attract tenants - there the property with a nice outside and finishes might be more important.

LINDSAY WILLIAMS: Also, if you’ve got a lot of customers coming in and out?

GEHARD ZEELIE: Exactly.

LINDSAY WILLIAMS: What about the finance options? Do you buy a building that’s already there, or do you get a nice piece of land and build your own?

GEHARD ZEELIE: Again the question is about what you want to use it for. If you’ve identified a nice piece of land where you want your property situated you can build it yourself - we from a banking perspective are more than willing to accommodate the building of the property. On the other hand if you’re building to renting it out it’s very important you involve the tenants upfront - those tenants might have certain requirements as far as that building is concerned, so it’s very difficult to build a building on a speculative basis to then try and run around looking for tenants.

LINDSAY WILLIAMS: So the best thing at the end of the day - having taken all these things into account - is to go to an expert, to a bank or an advisor. In general terms - how are you finding the market? I keep hearing that the property market is still booming - both residential and commercial - are you finding that at FNB?

GEHARD ZEELIE: The commercial and industrial property markets are doing exceptionally well - the interesting thing is that over the last year, up to the end of December 2004, the industrial market has actually outperformed the commercial market. Traditionally people have perceived industrial properties to be in less demand than commercial properties - currently there is a huge shortage of industrial space in South Africa, and huge opportunity as far as industrial space is concerned.

LINDSAY WILLIAMS: What sort of industrial space are we talking about?

GEHARD ZEELIE: Warehousing, factories - those types of properties.

LINDSAY WILLIAMS: So the market is booming?

GEHARD ZEELIE: Absolutely.