5 Things To Know Before Investing In A Commercial Property In Singapore

commercial property Singapore

Are you considering investing in a commercial property Singapore? Before diving into the market, it’s crucial to be well-informed about certain key aspects. In this article, we’ll break down five essential things to know before making such a significant financial decision.

Paying For Your Commercial Property

Unlike residential properties, financing a commercial property in Singapore is distinct. CPF savings cannot be used, meaning cash is your primary funding source. The down payment, monthly mortgage, stamp duty, and legal fees must all be covered with cash. However, you can secure a larger loan for a commercial property, with a maximum loan-to-value (LTV) of 80%, compared to 75% for residential properties. Remember, the actual amount the bank lends depends on their assessment of your creditworthiness.

Commercial Property Tip: For a $1 million commercial property, expect a minimum down payment of $200,000 (in cash) and a potential loan of $800,000.

No Additional Buyer’s Stamp Duty (ABSD)

A significant advantage for property investors in the commercial sector is the absence of Additional Buyer’s Stamp Duty (ABSD). Unlike residential properties, you won’t face this hefty additional cost, making commercial investments more financially appealing. Instead, commercial properties incur Buyer’s Stamp Duty (BSD), with rates ranging from 1% to 3%, still lower than the top rate for residential properties.

Commercial Property Singapore Tip: Calculate a BSD of $24,600 for a $1 million commercial property based on the outlined rates.

Property Tax Rate Is A Flat 10%

Be prepared for a flat 10% property tax on the Annual Value (AV) of your commercial property, regardless of its use. This is higher than residential property tax rates, emphasizing the need to factor in this ongoing expense. For instance, if your property’s AV is $30,000, your annual property tax will amount to $3,000.

Commercial Property Singapore Tip: Budget for a 10% property tax on the AV when planning your commercial property investment.

commercial property Singapore

Choosing The Right Property To Purchase

Selecting the right commercial property involves thorough research. Consider its location, proximity to transport hubs, and potential developments outlined in the URA Master Plan. Understanding the property type is also crucial – tenure matters, especially for industrial properties with varying lease lengths. Additionally, if buying for personal use, ensure the space aligns with your business needs.

Commercial Property Tip: Check for potential rezoning or plot ratio adjustments in the URA Master Plan to gauge the property’s future value.

Build Equity In A Property You Own

For business owners, purchasing a commercial property offers financial advantages. It allows you to utilize the space for your business, replacing monthly rent with mortgage payments. As you repay the loan, equity in the property builds up, eventually serving as collateral for further financing. If the property becomes unsuitable, renting it out can provide a recurring income stream to cover mortgage payments.

Commercial Property Singapore Tip: Evaluate the long-term benefits of building equity through property ownership, weighing it against renting.

Renting Or Buying, Which Is Cheaper?

The decision between renting and buying depends on various factors, including market conditions, business sector, and working trends. Currently, the commercial property market in Singapore offers potential opportunities for investors due to declining prices.

Commercial Property Tip: Consider rental yield, potential price appreciation, and additional costs when evaluating the financial feasibility of your commercial property investment.

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