IN THIS POST
– Collect the Basic Information
– Conduct Building Inspection
– Assess Tenant Information
– Review Statements & Agreements
– Check Property Documents
There are a lot of things one must take into account when buying or leasing commercial property. However, since evaluating a potential investment can be rather overwhelming, even seasoned investors tend to make mistakes that can end in a disaster. If you want to avoid making such costly blunders, follow our checklist for buying a commercial property in Pakistan to learn what questions to ask when buying commercial property and which documents to demand.
The main types of commercial real estate in Pakistan include plots, shops, offices and warehouses. In case you are still stuck in the residential vs commercial investment debate, make sure to check out our comprehensive guide on the matter. You can also take a look at the most important factors for commercial investment in Pakistan before we discuss the commercial real estate due diligence checklist.
Checklist for Buying a Commercial Property
Here’s a rundown of things you should look out for when buying commercial property.
Collecting Basic Property Information
The first item in our commercial real estate due diligence checklist is collecting the basic data about the property you’re interested in. This includes gathering information about the area size of the building, the number of floors, types of available properties, total commercial units, size of the parking area, zoning, availability of civic amenities, and most importantly, the NOC issued by the respective development authority.
Once you have collected the above-mentioned details, it’s time to cross-check the information provided by the seller or real estate agent with the public data for further verification. For instance, you may contact the Lahore Development Authority (LDA) to check the status of commercial property in Lahore. Those investing in Karachi can contact the Sindh Building Control Authority (SBCA) or Karachi Development Authority (KDA), whereas buyers in Islamabad can get in touch with the Capital Development Authority (CDA).
It is important to verify every piece of information independently instead of relying on the seller’s word.
Conducting Building Inspections
Checking the utilities, facilities and structure of a building is the second item on the checklist for buying a commercial property.
Since a commercial investment is usually more expensive than buying a house or an apartment, it is recommended to hire licensed inspectors and experts to individually assess each component of its structure. This includes inspecting the foundation, roof, walls, condition of windows and doors, electrical system, water supply and waste management system, gas connection, phone lines, fire safety system, emergency exits, underground storage tanks, central air-conditioning system, security systems and other facilities. You should also hire professionals to look out for mould, termites or some other kind of infestation.
Regardless of whether you are a novice investor or have substantial experience in the business, make sure to hire experts who are well-versed in the local area building codes. If the property is located inside a housing society, you’ll have to keep their bylaws in mind when inspecting the building.
On a side note, here is a DIY home inspection checklist for buyers that you may find helpful.
Assessing Tenant Information
Buying a building that is already occupied by different businesses has its pros and cons.
On the bright side, you won’t have to advertise or look for new tenants and can simply renew the existing contracts. However, on the flip side, you will probably have to make amendments or even cancel certain contracts to ensure a steady rental income. Therefore, the third item in our checklist for buying commercial real estate is to gather information about the present tenants.
Before you sign below any dotted line, gather as much information about the tenants as possible. You need to be aware of what kind of businesses are operating out of your potential commercial investment. Information about the monthly rent, security deposits, and utility obligations need to be verified as well.
It is also important to examine the financial stability of each tenant to ensure they won’t default on their payments and will be able to meet the deadline. Studying the business models of these companies may also give you a fair idea about their ability to pay the rent.
Furthermore, since commercial rent agreements last for several years, you must also check the outstanding liens and litigations of each tenant. If you come across a business with a history of legal or financial troubles, ask the seller about their contract details as such tenants can have a negative impact on the reputation of your property. They can also affect your rental yield.
You should consider taking a look at this guide on renting a commercial property in Pakistan that includes everything a landlord should know before renting out their building, office space or shop.
Reviewing Statements and Agreements
You may have conducted a physical inspection of the commercial property that you are planning to buy, but what about reviewing its non-physical aspects?
Before buying commercial real estate, you must review building permits, architectural drawings, approved plans, zoning documents, environmental assessments, financial statements and building code violations. You should also request information about any past and present litigation issues. Next, you must receive and review different service contracts. Apart from their verification, you should also check whether they can be terminated without penalty.
Insurance coverage is also something that needs to be discussed at this stage. Here are some key differences between homeowner insurance and landlord insurance that might help you out.
Checking Property Documents
The final item in our checklist for purchasing commercial property is receiving and verifying the paperwork.
Though before we discuss the list of documents you must obtain before striking the deal, make sure to check out our guide on selling and transferring property in Pakistan to clarify any confusions you might have about the process. If you are a real estate market entrant, our real estate glossary will also be very beneficial.
Moving on, here are some of the most important documents you need to check before going ahead with your property investment.
- Sale Deed
- Mother Deed
- Approved Plan of the Property
- Bank Approval Certificate
- Encumbrance Certificate
- Power of Attorney
- Property Tax Receipts
- Completion Certificate
You can find out more about these essential property documents in Pakistan here.
Whether you are buying or leasing commercial property, always take extra care to ensure you don’t miss out on any details, no matter how inconsequential they may appear. Moreover, hiring experts for building inspection may be a little costly, but you must remember that spending a few thousand rupees on due diligence is a far better investment than losing several hundred thousand later down the road.
This brings an end to our checklist for buying a commercial property. For queries and feedback, feel free to get in touch with us by dropping an email at blog@zameen.com.
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