As a first-time investor in commercial property in Singapore, there are many aspects to ponder about before kicking off the process.
For instance, even though commercial property may provide a higher yield than residential property, it is highly dependent upon factors such as location, new developments in the area and infrastructure.
Commercial properties except industrial are typically untouched by cooling measures. The commercial property market has never overheated like residential properties; this is because most commercial properties are reasonably priced.
Commercial properties usually have a lower price per square foot (psf) than residential properties. Residential properties typically have leases of 99 or 999 years, or are freehold. Commercial properties often have leases of 30-60 years. There are of course freehold commercial properties, but these are not located in prime central locations where most business operate.
Most banks provide up to 80% loan of the property value with a payback period of anywhere between 15 to 20 years. Some banks will finance only specific types of commercial property such as office spaces and retail.
The Loan-to-Value for commercial properties typically ranges from 60% – 75%, while the loan tenure is typically 20–30 years. It’s important to note that banks will also grant a higher loan (up to 10% more) should the commercial property be used for owner-occupancy and not for investment.
The location of the commercial space is generally affected by the tenure and type of property. Establishing the location first is crucial as it will help shape your future decisions such as renting out the property in the future. If so, the investor has to ensure the property has the potential to be rented out or sold at a profit.
The rental yield from commercial properties average 5%, compared to 2% – 3% for residential properties. Compared to residential properties, commercial property owners need to also consider the need for constant asset enhancement.
If you’re planning to invest in commercial property, you will have to pay 7% GST in addition to paying the valuation price for the property. If you own a company and are purchasing the property through your company, then you can consider being GST- registered to claim back the GST amount.
For companies with turnovers below S$1million, GST-registration is on a voluntary basis, subjected to certain requirements. You can check out if you are eligible for GST exemption on IRAS.
Commercial property is not subjected to Additional Buyers Stamp Duty (ABSD) or Seller’s Stamp Duty (SSD). This means you don’t get taxed with ABSD when you buy and there’s also no SSD when you sell, making it much easier to invest when you want to.
Keep in mind that for industrial properties, there is Seller’s Stamp Duty (SSD). This was recently implemented by the government to curb speculation in the Industrial property sector. The SSD for industrial properties is 15% of the sale price if sold in the first year, 10% for the second year, and 5% for the third year.
According to IRAS, non-residential properties such as commercial and industrial buildings and land are taxed at 10% of the Annual Value. The owner-occupier tax rates do not apply to non-residential properties even if you have bought the properties for your own use / occupation.
Also published on Medium.