In recent years, real estate investors have been switching focus from residential to commercial properties in Singapore. Local and foreign businesses both need guidance when considering whether to buy commercial property or not, because there are many factors like leases, location, and loans to be concerned about. Business owners sometimes feel safer owning their retail or office space, and if you’re someone who’s considering a Singapore real estate investment there are seven things you need to know about before spending that much money.
Commercial real estate can be broken down into four categories. The first is office buildings, which provide tenants with a workspace that can range from a modest office building to a skyscraper. Then you have your industrial buildings, which also vary in size but have anywhere from 16 to 40 feet between the floor and its ceiling. Retail and restaurant space is a little more self explanatory, you’ve probably been in one of these spaces this week, like a grocery store or Starbucks. Finally, you have family oriented spaces which are large apartment complexes.
If done correctly commercial property investment can offer stable profits for investors, and serve as an asset to companies. Owning a space for your business is important to many owners who feel limited by renting their commercial work space. Investors have a lot of money to make if they pay attention to the market and rent to the right tenants. Making the switch from residential to commercial property investments definitely will present a few challenges, and a few set back in the beginning. However, in the long run commercial properties have the potential to make you a lot of money.
We have created these seven categories to educate investors in what I find to be the most crucial details about commercial real estate in Singapore.
While shopping around, you’ll find that most commercial properties in Singapore are leasehold. Despite land scarcity, it is possible to find a freehold property somewhere on the market too, but it’s far less common. Freehold will almost always be more expensive than leasehold, and regardless of which you choose to pursue you need to be sure your budget can handle the initial costs while your rental profit handles your mortgage.
Leasehold properties can usually come with a 30, 60, 99, or 999 year lease. Loan tenure usually comes with a standard 20-30 year lease. In contrast, residential properties commonly have 99 or 999 year leases, or are freehold. The difference between residential and commercial property leases is is due to limited land resources. Loan tenure for residential properties, though, are usually 35 years, and hold slightly lower interest rates.
The type of property and type of lease are largely affected by lease. This in turn affects tenure, since certain commercial properties, such as industrial complexes, require longer leases. Commercial real estate investments for a company should always be determined by location within the city.
Certain parts of the city are going to boost sales, while others will be more accessible via public transportation. Location research is important for investors who plan to rent their space to other businesses, since not all properties are well suited for certain business models. A place where residential rent is cheap, doesn’t mean that commercial property in the same area will be as well.
Rental Income and Capital Gain:
The rental income is largely dependent, once again, on location. Public transportation is essential for potential renters to take interest in your property. Capital gains are bound to increase with proper tenants, since maintenance costs are inevitable. The main ways people see capital gains is through selling the property. Some rental spaces, if sold at the right moment, can offer over $1000 per square foot. Both rental yields and selling can increase capital gains, it just takes some speculation on the owner’s part.
Commercial rental yields are usually about 5% as opposed to residential 3% yields, which is mostly due to lower costs throughout the year. Returns on commercial properties tend to be quicker, though.
Singapore’s current property tax is set at %10, so prepare to pay a chunk of your profits. Owners can’t guarantee they’ll be able to fill their rental space, and there is a vacancy refund some might be able to take advantage of. Residential property tax fluctuates each year depending on its Annual Value, and can differ whether the owner is occupying the home or its being rented out. For owners occupying their homes it ranges from 0% to 15%, and for owners renting out the place it’s 5% to %20.
GST (Goods and Services Tax)
The GST for buyers not affiliated with a company is 7% in addition to other costs. Companies have the option of registering to get that 7% back, but there are regulations involved in order to qualify. If your turnover is over one million dollars you’re required to be GST registered. The owners are responsible for the GST, and can’t finance it through their loan. One benefit to residential properties is that the GST will not apply to them.
Loan-to-value rates for commercial properties in Singapore are usually set at 80%. This is higher than most residential properties. It can vary depending on the type of owner you are. Business owners are more like to get an 80% than investors are. The payback period is usually set some time between 15 to 20 years. Loans for residential properties can go up to 90%, and are more simple with their regulations.
Individuals should be warned that paying for property with their CPF isn’t permitted, and down payments must be backed by cash. This is another area where buying residential property has more accommodation. CPF can be used to purchase residential property, so if it’s something you plan to lean on then residential might be a better fit.
Buying commercial property in Singapore has its benefits and downfalls. The downfalls can be easily overseen if you have a shrewd investment strategy. The best way to succeed is by making sure your profits are paying your mortgage and additional taxes very soon after purchasing the property. Come up with a plan and take advantage of GST registration if your a company. All owners should be sure the property is in great shape before purchasing. With a good place, commercial real estate investment in Singapore is still profitable.