HDB Loan Eligibility


Things you want to know before you invest in commercial properties

There are two types of real estate to invest in Singapore: commercial or residential real estate and each of them have their very own distinctive characters and traits especially the land use. On the profits and yields, commercial properties may reach 5% on average, whereas residential units typically have more modest rental yields of 2 to 3% which makes commercial property investment is attractive to many. However, due to the unique traits of each property type, everyone has their preference and suitability to their preferred property type. Some may find it difficult to invest in residential property due to their HDB loan eligibility (better rates than banks) or hassles with the selling processes and documents. Some may find commercial property will burn their pockets deeper and challenging to find tenant or buyer. This in-depth analysis for commercial properties investment that we are going to share will help you make sounder and concrete investment decisions.

The main differences between commercial and residential investments in Singapore:
  • Bigger cash outlay
  • Flat tax rate
  • Common shorter leases
  • Different tenants, different considerations
  • Tied to industry-specific cycles
  • More hands-on management

Bigger cash outlay
Investing in commercial properties, you will need to have more capital as opposed to residential properties. Here’s why you need more capital in this investment.

First issue about this is that you cannot use your Central Provident Fund money (CPF) for commercial property investments. CPF money can only be use to pay for your property through your CPF Ordinary Account (CPF OA) under the private properties scheme as long as it is within prescribed limits such as the value of your property.

Second issue is about loans for commercial properties tend to have larger amount of down payment. The maximum loan to value (LTV) ratio for commercial properties is the same as for residential properties where banks allows to lend up to 80% of the property’s value. But, borrowers typically can get the LTV between 70% to 75%. This is due to banks consider commercial properties to have higher risk compared to residential properties.

Lastly, the Goods and Services Tax (GST) of 7% is applicable for commercial properties. Meanwhile there is no Additional Buyers Stamp Duty (ABSD) for commercial properties, the GST makes up for it. Unlike the ABSD however, the GST cannot be paid through your CPF, adding onto the higher cash outlay.

Flat tax rate
When it comes to tax, both are taxed differently where commercial properties have a flat 10% of the commercial property’s Annual Value (AV). Meanwhile, for residential properties, they have a tired tax rate that is based on the AV of the property with the rates ranging from 0 to 16% for owner - occupied properties and 10 to 20% for non - owner - occupied properties. In all, commercial properties for investment has the tendency tends to be taxed lower than its residential counterpart. Click here to check the tax rates for commercial properties.

Common shorter leases
The lease tenure for residential properties are 99-years, 999-years or freehold. On the other hand, commercial properties is otherwise, the leases tend to be much shorter. Besides, it is quite common to find leases of just 60 years. Though freehold commercial properties are rare but they do exist and the catch is the location of the commercial properties is situated in more obscure or inaccessible areas. Hence, it may be more suited for light industrial uses than retail (that if it’s permitted by URA).

Different tenants, different considerations
Commercial properties tenants’ needs are more diverse compared to residential properties. Residential properties tenants’ needs tend to be quite common and universal where almost everyone wants to stay near MRT station and surrounded with plentiful of eateries and retail nearby. As for commercial properties tenants’ needs can differ greatly even within the same industry.

For example, a design agency may need an office space that is individualistic and shows flair, signaling them to pick a shop house over a typical office building. You may also think that all retail tenants care greatly about the foot traffic but you could be wrong; some niche businesses, such as companies that sell car decals or sound systems that have customers who are willing to travel to them and they are not reliant on passing trade at all.

It is rewarding in terms of the yield when invest in commercial properties but they are less forgiving to landlords who don’t know their tenant demographic in depth.

Tied to industry-specific cycles
The fate of a commercial property is tied to its tenants, which also tied to certain industries. Retail is currently taking a beating due to the business lost with e-commerce and rise of online shopping. Likewise, a slump in certain manufacturing sectors can impact industrial properties and economic recessions can hit office properties real bad. The capital appreciation of a commercial property are intertwined with the relevant industry sectors and are affected by market conditions for these sectors.

More hands-on management
Generally, landlords of commercial properties are called upon to do more than residential landlords where they are required to renovate and upgrade the facilities or property more often because of the frequent use that causes the wear and tear. Most importantly, the tenants are business entities so they tend to be more calculative with everything. Remember, a successful commercial landlord are go-getter and business minded to keep tenant happy while optimizing rental yield.

You Might Also Like


blog ini berbentuk blog personal yang berkongsi tentang kehidupan zizie, dan beberapa informasi yang berguna untuk manusia sejagat. sebarang bahan bacaan di dalam blog ini bebas untuk ditulis semula kecuali bahan yang berunsur peribadi dan merupakan hak milik zizie. pihak zizie juga tidak bertanggungjawab terhadap komen-komen daripada para pembaca.