Key Money on Commercial Leases
Matt Singer living in Singapore writes "Can you advise how much "key money" would be customary for a 2 year commercial property rental? I am interested in pursuing a business in Patong and would like to factor in this cost into my plan" ?
Very hard to say with any precision. Terms will vary enormously from property to property
Key money (which is non refundable and not to be confused with a security deposit) is in the main part an advance payment of rent - although in some cases it is in effect a payment for fittings and improvements within a property.
For a bare shell of a building in an area with reasonable availability you should not usually be required to pay any key money, just pay 2-3 months rent as a (returnable) security deposit, and make rental payments monthly in advance throughout the term.
If the same building has an existing tenant (who is selling their lease rights on) or the owner has previously operated a business in the premises they will probably require a one time premium (also in effect key money) for the renovations and improvements they have made in the building.
As locations get primer and property scarcer, not only will the rents
get higher, but the requirement for key money will get greater. In many
prime locations rents may be required to be paid fully almost fully
(with a token monthly rent) in advance for the entire term.
Illic from Hungary wrote "Here's the Phuket-Thailand-lover family!!! We've been in Thailand several times and my wife and I are both 38 years old and we have an 18-year-old daughter and an 16-year-old son. Our daughter decided on studying at the PSU, Phuket Campus and we'd also like to live in Phuket.
Right now we're engaged in a small business (trade) and the economical situation here is awful and our earnings are very low. We could supply 40,000 US$ but that would mean selling all our property.
Do you think that we could start some business over there with this amount of money? That would be like running out of hell and heading to paradise!"
As regards a business, Phuket is becoming an increasingly sophisticated and competitive place, so I usually suggest people to set up a business in which they already have proven skills aboard and can see that they can run more competitively or in more distinctive or innovative ways that anything currently operating.
40,000 US$ is a by local (provincial) Thai standards quite a large sum and many locals will set up a shop or small business on a considerably smaller investment. However in resort Phuket terms, this investment will not go so far. Commercial property in tourist locations tends to be much more expensive - but so too, of course, is the potential volume of business.
Clearly with this size of investment (local financing is now close to impossible with the local liquidity crunch) it will be hard to acquire a business premises (except in a remote location) and you will almost certainly have to work from a rented property.
Another approach would be to look for a business model where a prime (expensive) location is not critical. A business that involved delivery of your service or product or where people would come (or telephone) to you would suggest itself. Clearly however more needs to be spent on promotion of such a business and it will probably take longer to get known and develop a market.
The tourist market although generally perceived as the most lucrative one, is not the only market in Phuket. There is also a local Thai and expatriate community, both of whom also have needs that are often far from fulfilled.
You just have to find and develop a niche for yourself (sounds simple !!). Finally I would repeat my recommendation that you do something in which you have prior experience and skills, and will bring new and innovative ideas to Phuket. Dont try to copy an existing business (even if it is successful), unless you know you can bring new skills and considerably improved product… otherwise you run the risk of being just another struggling "me too" operation.