Expert Eye - Making sound choices for your business

Expert Eye - Making sound choices for your businessMohanad Alwadiya

After the onslaught of the last global financial crisis, everyone, businessmen and entrepreneurs included, have become more wary of stepping into the unknown, especially when they feel their undertaking involves more than the usual amount of risk.

However, any businessman worth his salt, and who has done his homework, also knows that a ''Who Dares, Wins'' attitude helps distinguish those who are successful from visionaries whose influence lasts way beyond their generation. A smart decision-maker will, anyway, ensure he has got all the facts right and has made his own independent analyses before arriving at a business decision that can have long-term effects on the enterprise he has so carefully built.

Way back in August of 2012, I convinced one of our valued clients to consider a simple 'lease versus buy analysis' that I had prepared. Now, I have to mention that during that period, a lot of businesses were still considering rentals over outright purchases as memories of the recent local property collapse coinciding with the GFC remained fresh in their minds.

However, the carefully prepared presentation resulted in this client's decision to purchase the premises from which he can conduct his business as opposed to simply leasing them.

Happily (for both of us) what seemed to be a slightly risky move at the time eventually paid handsome dividends, effectively eliminating a Dh2.5million rental expense, and replacing it with an estimated Dh2.1million worth of capital gain. Obviously, this is excellent news, but it only leaves me to ponder why more businesses have not made the same move.

We have always advocated for several years now that, cash flow permitting, businesses acquire their own premises.

The case for purchasing your premises can be quite simple yet compelling, particularly if your business has benefitted from cost reductions resulting from restructuring during the global financial crisis, and the subsequent accumulation of cash as a result of Dubai's resurgent economy in the past couple of years.

If you are a business committed to operating for the long term in Dubai, it makes sense to own your office space, particularly if it is a well-negotiated purchase. There is no tax advantage in leasing in Dubai and, as long as your office space is appreciating, your balance sheet can look a whole lot better.

And the opportunities to buy true value have never been better. However, you will need to hurry. Office space over the past five years has never been so plentiful, affordable or negotiable, and is unlikely to be so again.

But beware, things are starting to change, and with office prices increasing by up to 20 per cent YoY in some areas, now is the time to knuckle down and, at least, consider the opportunity to own your business premises.

Obviously, careful planning is essential with considerations not being solely based upon cost per square foot. Location, proximity to clients, building quality, peer proximity and logistics are just some of the factors which need to be assessed.

With the continuation of the ongoing economic recovery, and the expected increase in commercial activities resulting from the Expo 2020 event, superior or even optimal solutions will only become harder to identify and, if you are currently renting your premises, it is only a matter of time before your landlord gives you a call to initiate a discussion about raising your rent.

This opportunity may not arise again for some time, that is, if it ever will at all.

Source: Mohanad Alwadiya, Special to Freehold

The writer is Managing Director of Harbor Real Estate

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