muyongshi Posted October 27, 2015 at 02:29 AM Report Posted October 27, 2015 at 02:29 AM A question for those who do business/planning on doing business/have done business in China. Is it desirable in anyway to purchase rather than lease commercial space? I know it's a broad topic but I am curious on many levels: from restaurants to consulting. I think there are pros/cons all around but am interested in people's thoughts/experiences. And before anyone asks, the lawyer I know has said that foreigners/foreign entities are allowed to purchase commercial space. Quote
gato Posted October 27, 2015 at 02:53 AM Report Posted October 27, 2015 at 02:53 AM To buy, you have to look at it from an investment perspective. Is the price to buy attractive compared to the rent? A price of 20x annual rent would be fairly attractive. But if they were asking for 40x annual rent, I'd probably go with renting, unless the local real estate market is booming and price might appreciate significantly in the near term. At the moment, commercial real estate, particularly in non-first tier cities, is in the doldrums and unlikely to take off in the next two to three years. 1 Quote
muyongshi Posted October 27, 2015 at 07:22 AM Author Report Posted October 27, 2015 at 07:22 AM Thanks Gato. Where did you get those numbers? Was it just an example or something you were taught or found out by experience? The problem I'm thinking regarding buying/renting is that (at least in our city) the couple of landlords I have met set rent not based on the market but particularly based on the success of the business. So, they drive by and if it looks like business is doing good, the raise the rent (seriously not making this up, it's straight from the horses mouth. And no, he didn't have the surname 马). So, the businesses I've been involved with/considering to be involved with, I'm trying to decide how that would affect rent. Of course I think that the more "mall" like spaces where you have McDonalds and other large places, operate differently. The landlords I was referring to specifically are the small shops here and there. So maybe, the situation I've encountered is very unique. Quote
roddy Posted October 27, 2015 at 07:49 AM Report Posted October 27, 2015 at 07:49 AM It's not uncommon to hear of landlords doing that, or even kicking you out at the end of the lease and running an identical business. 1 Quote
Simon_CH Posted October 27, 2015 at 08:23 AM Report Posted October 27, 2015 at 08:23 AM Because usually interior decoration/furniture is the tenants responsibility it's wise to have a longer-term rent to avoid exactly the above. Quote
gato Posted October 28, 2015 at 12:50 AM Report Posted October 28, 2015 at 12:50 AM 20x annual rent is equivalent to a 5% annual yield on the purchase price. 40x is 2.5%. The annual yield numbers allow you to compare with other types of investments like stocks and bonds. Back in the 2007, annual yields for apartments in Shanghai were close to 5%, meaning that they were a relatively good deal. Today, the yield is closer to 2%. Sales prices have much outpaced rent, making renting a better deal. 1 Quote
eion_padraig Posted October 28, 2015 at 05:05 AM Report Posted October 28, 2015 at 05:05 AM I have a few friends who have or tried to open up small to medium sized restaurants and bars in Guangzhou. Finding rental space at a reasonable cost is a major barrier and hassle. A few came close to closing on deals only to have the landlord change their mind at the last minute. Someone I was talking to recently was explaining to me why so many prime places go empty for so long. The people who own the properties won't sell unless they can re-coup all their losses with a fee in addition to the sale price. The few foreigners I know who run successful small to medium sized businesses all have Chinese spouses. It reminds me of one of the Sinica Podcasts where the owner of Slow Boat brewery discusses the early days of his business. Again, his wife is Chinese. I've had more than one foreign business owner discuss their frustrations with how things go. Quote
muyongshi Posted October 28, 2015 at 08:25 AM Author Report Posted October 28, 2015 at 08:25 AM It is one of the factors to consider. If you don't think the hassle is worth it, giving up before starting is probably recommended. Thanks Gato for that explanation. Sounds like a real solid way to evaluate it. Simon, do you have any thoughts on what it means for a longer term rent? Do you mean longer contractual agreement with predetermined prices? Quote
muyongshi Posted October 28, 2015 at 08:28 AM Author Report Posted October 28, 2015 at 08:28 AM Roddy, you mentioned people being kicked out after end of lease. Have you ever heard of contracts being broken to either kick someone out or force the rent higher? I have seen that happen with housing contracts, but not sure if it happens with commercial space. Hopefully the contract is iron clad enough to prevent that... Quote
roddy Posted October 28, 2015 at 10:57 AM Report Posted October 28, 2015 at 10:57 AM Actually when I try and find an actual case there are also business partners or employees involved - ie, SALT in Beijing. Quote
muyongshi Posted October 29, 2015 at 12:20 AM Author Report Posted October 29, 2015 at 12:20 AM I have no words... Quote
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