Offtake

Offtake

Benefits of Investing in offtake real estate!

 

The real estate market in Nigeria is rapidly evolving and most developers are beginning to adopt the offtake system of purchasing a property. An offtake agreement is an agreement that a buyer makes with a developer.  The developer agrees to sell the property at an agreed price while construction is in progress. An offtake agreement usually occurs before or during the construction of the property.

 

Buying a property at offtake has tremendous benefits such as the following:

For the Buyer

An offtake agreement allows you to buy at a comparatively lower cost, which appreciates in value once construction is completed. Offtake prices are typically lower than the cost of a fully constructed property.

Buying at offtake allows you to save more and as a plus, you benefit from instant value appreciation of up to 10% once the building has been completely constructed.

 

offtake

 

An offtake agreement functions as a hedge against future price fluctuations. As an offtake buyer, you’re insulated from fluctuations in the money market, for instance, weakening of the naira against the dollar.

Buying at an offtake allows you the freedom of expression. You’re given room to voice your expectations, tastes and what you want in terms of designs required in your building. This saves you the extra cost of renovating an already constructed building to suit your taste.

 

READ MORE: Real Estate Business

 

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The developer also benefits from the offtake agreement in the following ways:

For the Developer

An off-taker purchase allows the developer to recoup a large chunk of their investment and prevents long-vacant periods after construction. It’s common to see buildings stay vacant for up to three years after construction, in which they’d have to factor in depreciation. The system also allowed for a reduction of void before the building is constructed. Offtake agreement facilitates the easy transition from construction to occupancy and increased value of the property.

The offtake agreement gives the project the extra nudge to guarantee the completion of the project in the future.

 

 

 

 

 

 

 

 

Real Estate Business

Real Estate Business

What is Commercial Real Estate?

Commercial real estate is property exclusively used for business purposes or designed as operational offices. Commercial real estate includes retailers of all sorts from huge shopping complexes to offices, restaurants, kiosks, hotels, pharmacies, gas stations, etc.

Why should you invest in Commercial Real Estate?

Without a commercial real estate, there will be no organized venue for business to successfully carry out their activities and cater to customers conveniently. Companies generally rely on commercial investors to erect structures in the allotted commercial zones and lease the space to them for an agreed period of time. Other than creating a cost-effective and profitable business space, commercial real estate investors, help boost local businesses.

When commercial real estate investment is rightly done, it is extremely lucrative and serves as a secure source of income when compared to the volatility of the stock market. A bulk of the returns from investing in commercial real estate comes from tenant rents. Typically, business spaces are leased out to tenants for an agreed period of time, say two years and even up to ten years. After this, the tenant may choose to renew the lease period, or the property is refurbished to suit another business.

There are two major ways of investing in commercial real estate. They include:

Direct Investment

Here, investors become the landlord through direct acquisition of the physical property. Unlike residential real estate, commercial real estate requires substantial capital to purchase and revamp to suit the type of businesses expected to move in.

Investors most suited for direct investment need to have an in-depth knowledge of the real estate market and the interworking of the local economy or work with a real estate company that does. Commercial properties are a high-risk, high-reward real-estate investment. As such, if it’s not done correctly, losses may be inevitable. For instance, there are certain streets like the Admiralty way in Lekki and the Computer Village at Ikeja that are booming locations for commercial real estate. There are also certain areas that aren’t suitable commercial zones. The result of carrying out a proper feasibility study before investing in an area is a high vacancy rate or low occupancy rate. There are a good number of unoccupied plazas around Lagos, especially those located away from major roads. Most businesses would typically go for areas that offer good visibility to attract more customers.

Determining the ideal location is a bit tricky as the most populated street isn’t always the high in-demand location. Also, the type of structures built should be suitable for the businesses that would likely thrive at the location. For instance, constructing a building with the purpose of creating co-working spaces is completely different from a building constructed to house a restaurant.

The ideal property is in an area with a high demand for commercial real estate and low supply, coupled with favourable rental rates. The economic growth of an area greatly influences the value of commercial properties.

For the third year in a row, Hong Kong’s Central district is ranked the world’s most expensive office space, primarily due to the high demand from Mainland Chinese firms. The average office space in Hong Kong’s Central costs $306 per square foot per year. That’s roughly N 120, 000 per square foot.

 

READ: 1004 Estate Model

 

Indirect Investment

Alternatively, indirect investment allows investors to invest in companies that primarily finance or develop commercial properties like banks or real-estate companies. Another option is owning various market securities like Real Estate Investment Trusts (REITs) and exchange-traded funds.

Real-estate investment trusts (REITs) are corporations or trusts that operate as income-producing real estate. They use the pooled capital of investors to purchase and manage income property, which is often commercial real estate. REITs are traded like stocks, where you can buy or sell REITs through a stockbroker.

 

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The profit potential of investing in commercial real estate is limitless. A classic example is how McDonald’s – a renowned fast-food company – derives most of its profits from its property assets and not from selling food. With its vast global network and expansion, McDonald’s owns valuable property in premier locations all over the world.

Advantages of Commercial Real Estate

Profitable Lease Rates

Commercial real estate pulls in large amounts of cash flow from its attractive leasing rates. In areas where there’s a high demand for commercial real estate and low supply, limited by land or law, the value of commercial real estate skyrockets, allowing investors to make fantastic gains.

Long Lease Periods

Unlike residential real estate, commercial real-estate benefits from comparably longer lease contracts with tenants. These long lease periods give the commercial real estate holder a stable cash flow and high occupancy rate of the building.

 

ALSO READ Nigerians in diaspora: What to consider when investing in real estate in Nigeria!

 

Capital Appreciation

Other than the attractive lease rates, high occupancy rate and providing a stable source of income, commercial real estate offers the potential for capital appreciation. As long as the property is adequately maintained and renovated.

Investing in commercial real estate is a profitable and effective way to diversify your investment portfolio. Give us a call today on 0908123456409095757575 to get our latest juicy investment deals.

You can also chat with us on WhatsApp: 09095757575 09081234564

Send us an email at info@sevicpdc.com.

 

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