Posts Tagged ‘Commercial Property’

What You Need To Know About Buying Commercial Property in Singapore

June 3rd, 2013



Singapore’s government has lately taken action to prevent a real estate bubble in the residence market, thus property buyers have turned their attention to commercial real estate.

Unlike residential assets, commercial property does not require any Seller’s Stamp Duty (SSD) or Additional Buyers Stamp Duty (ABSD). There are also no restrictions for foreigners to own such property.

In buying commercial property – whether it is to be purchased by a private individual or by a corporation – there are some important things to consider. Particularly if you are a novice investor in the commercial real estate market, it’s important to understand the factors outlined below.

Loans for Commercial Property

Compared to housing loans, loans for commercial property have stricter requirements. You may be permitted to take a loan-to-value ratio of up to 80% – even if you have any unsettled housing loans – but this of course is subject to the discretion of the bank or financing institution. The LTV ratio also depends on whether you will be occupying the property yourself or renting it out to a tenant, since there are sterner conditions for property that will be rented out.

Commercial property loans have a maximum tenure of 30 years. Similar to home loans, they are also available at Fixed-Rate and Variable-Rate Packages. But unlike housing loans, loans for commercial property incur comparatively higher interests.

For making a purchase under your name, the bank or financing company will need to evaluate whether you qualify for a loan. This involves an assessment of your regular income, credit history and any unsettled debts. They may also conduct further inspections of your financial records, or ask you to submit additional documents to ensure that you qualify for the loan. In addition, credit officers may enforce new regulations every now and then.

In purchasing property in behalf of a private limited company or LLP, the bank will need to look at the company’s financial record to calculate whether the company can afford to sustain this investment. For example, if the business has a regular monthly income of S$16,000, the bank may grant up to 80% of S$16,000. In effect, the Debt Servicing Ratio (DSR) for a company acquisition is much higher than that of a purchase by an individual. However, a company purchase necessitates a significant cash flow, so banks may mandate the organization’s director to personally guarantee any loan taken by their business. The director may also be obligated to submit proof that most of his income comes from the company. In addition, banks may require that the director must be a Singaporean citizen or permanent resident.

Interested buyers in need of more financing advice can seek FREE advice from a mortgage broker.

No Central Provident Fund Financing

If you are buying commercial property as an individual person, you have to be aware that you can’t use your CPF Ordinary Account to pay the down payment or the monthly installments. At that, the down payment has to be paid entirely in cash.

Remember that even if you plan to rent out your commercial space, you may not earn enough rental to pay back the monthly instalment of your loan. You will thus need to plan your finances and be ready for large cash expenditures.

Property Tax

The tax for commercial property is at a flat rate of 10% of the property value. This is also the rate in purchasing a second residence, or a residence that is left vacant or rented out.

Vacancy Refund

In case you are unable to rent out your property, it’s possible to request for a vacancy refund for the property tax.

Goods and Services Tax, or GST

Purchasing commercial real estate from GST-registered companies will automatically incur a 7% GST. This tax may not be funded by a property loan, and buyers will have to plan how to pay this in cash.

If you intend to buy as a private individual, you will have to shoulder the GST yourself. On the other hand, if you are buying property in behalf of a GST-registered organization, you can submit a claim for the tax involved in the purchase. Some individual buyers attempt to evade paying the GST by setting up Special Purpose Vehicles, or companies specifically intended for business transactions.

Please be reminded that all companies that have an income over S$ 1 million are required to register for the Goods and Services Tax. For companies whose income is below that amount, GST registration is optional under certain conditions.

Naturally, GST registration involves various requirements and duties. If you need more information, consult the Inland Revenue Authority of Singapore

Leasehold Tenure

Commercial units in the country are available at 30-year, 60-year, 99-year or 999-year leaseholds. There may even be a number of freehold units.

If you intend to buy a leasehold commercial property in Singapore, always note whether the lease has only a few years remaining. Note that banks or financing companies tend to offer a smaller loan quantum for such properties.

Capital Gain From Resale, or Profit From Rent

Colliers International, a world leader in real estate, reports that renting out commercial spaces can boost your average annual income by around 5%. Residential property only takes up 2 to 3 %.

Despite the higher returns from the rent, note that commercial property also involves greater maintenance and renovation costs – this is basically why owners of commercial property need to charge much higher for maintenance. In addition, making the unit ready for occupancy may require even more expenses, particularly for shops and business spaces.

HDB shop units however, require only around S$170 to S$250 for maintenance, which is comparatively lower. Nonetheless, this type or property comes with more restrictions in terms of renovations and the kind of business it is used for.

Land area is very limited in Singapore, so that means there is a small supply of property with a very large demand. Because of this, the property value of strata title commercial assets rises considerably, so commercial units tend to be a good investment.

Moreover, there is a limited number of strata title shop units and office spaces available. This is because most commercial properties are already owned by real-estate investment trusts (REITs), many of which are government-owned by proxy.

According to a Colliers International report entitled, “Bright Spot in Singapore Property Market: Strata-titled Offices”, the strata title offices in the country have been estimated to amount to a total area of a mere 11.05 square feet. This area comprises only a little over 14% of the total supply of office space, as of the fourth quarter of 2011. Strata title shops are similarly scarce.

To tighten the market even further, countless restrictions and regulations in residential real estate has turned even more property buyers toward the commercial market. In the current low interest rate climate, these conditions have increased the demand.

Selling en bloc has become an option for investors, so as to secure a good profit. For instance, the strata title offices in Burlington Square sold for S$1,318 per square foot in April or 2012, while those in Parkway Centre sold for S$1,043 per square foot.

All that said, investors still need to be very cautious if they hope to profit from leasing commercial property. As of now, there are no official statistics available regarding the rate of occupancy for strata title shops and offices, so it’s hard to be certain about the demand for rentals. In addition, the supply of commercial units are steadily growing since many new real estate developments have emerged in recent years; it’s thus very possible for property values to decline eventually. It’s therefore advisable to be very selective in purchasing commercial property.

Download this article here.


Michelle Tee and Koh Siok Hui, Bright Spot in Singapore Property Market: Strata-titled Office, Colliers International White Paper March 2012, Web

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