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Navigating the commercial property market in Singapore: A comprehensive guide

Navigating the commercial property market in Singapore: A comprehensive guide
PHOTO: Unsplash

In the dynamic landscape of Singapore's property market, commercial real estate presents a unique opportunity.

This guide delves into the intracacies of the commercial property market, especially following the increase in Additional Buyer's Stamp Duty (ABSD) rates for residential properties as part of the September 2022 property cooling measures.

Here, we explore why and how investors might pivot towards commercial properties in 2023 and beyond.

Understanding commercial properties

Commercial properties in Singapore, which include retail spaces, industrial and commercial buildings, and hotels, serve primarily for business operations and income generation.

These properties are increasingly attractive to investors, businesspeople, and foreign buyers, particularly because they are exempt from ABSD, a levy applicable to residential properties.

Below is a table to show the distinctions between the types of commercial properties and what are the examples for them:

Type of commercial property Examples
Commercial and industrial Offices and warehouses (B1), factories (B2)
Retail HDB shophouses, bars, restaurants, gyms, pet shops, shopping malls, shophouses
Hotel Hotels, hostels

Foreign investment in Singapore's commercial property

Singapore's legal framework permits foreign investors to own commercial properties without the restrictions faced in the residential sector.

This openness creates a vibrant and inclusive market, appealing to international investors looking to tap into Singapore's commercial real estate sector.

In reference to the Residential Property Act, the commercial properties that foreigners can buy are:

  • Shophouses, for commercial use only
  • Hotels, that are registered under the provisions of the Hotels Act
  • Commercial and industrial properties

Key considerations before investing

Investing in commercial property requires careful analysis. Various types of commercial properties come with unique risks and benefits. Investors should also consider the property's zoning and potential for change in usage, as well as the significance of its location.

Financial aspects like ABSD, Seller's Stamp Duty (SSD), and the inapplicability of CPF funds for commercial property purchases further influence investment decisions. Explore our very own Stamp Duty Calculator before you proceed with the article!

You can take a look at the table below to see if you need to pay Seller's Stamp Duty (SSD):

Holding period SSD rate (on actual price)
One year 15 per cent
One to two years 10 per cent
Two to three years Five per cent
More than three No payable rate

Numbers according to IRAS

Financial aspects of buying commercial property

The financial landscape for acquiring commercial property in Singapore involves understanding loan-to-value ratios, the absence of ABSD, and the presence of SSD for certain types of properties.

Additional costs, including property tax, Buyer's Stamp Duty (BSD), and Goods and Services Tax (GST), as well as renovation and furnishing costs, play a crucial role in investment planning.

Buyer's Stamp Duty payment rates can be seen in the table below:

  Rates for residential properties Rates for non-residential properties
First $180,000 One per cent One per cent
Next $180,000 Two per cent Two per cent
Next $640,000 Three per cent Three per cent
Next $500,000 Four per cent Four per cent
Next $1.5 million Five per cent Five per cent
In excess of $3 million Five per cent Five per cent

Numbers according to IRAS

Leasing and rental yields

Commercial properties often come with different lease terms compared to residential properties, typically shorter. They are known to offer higher rental yields, though they may also incur higher maintenance costs, a factor to be considered by prospective investors. Check out our Affordability Calculator!

Financing commercial properties

Commercial property financing can be navigated through individual or corporate loans, with banks applying the Total Debt Servicing Ratio (TDSR) to assess loan eligibility. This varies between individual investors and companies, based on income and financial health.

We also have a TDSR Calculator!

Finding commercial properties for sale

Prospective investors can stay informed about upcoming commercial property sales through Government Land Sales (GLS) announcements. Researching market trends, including rental rates and vacancy statistics, is essential for informed investment decisions.

Seeking professional advice and loans

Navigating commercial property loans can be complex. Consulting with mortgage experts and financial advisors is recommended for personalised guidance tailored to individual investment profiles and goals.

Conclusion

The commercial property market in Singapore offers promising opportunities for investors in 2023 and beyond. However, success in this venture requires thorough research, careful financial planning, and an understanding of the market dynamics.

ALSO READ: Government Land Sales H1 2024: Prime residential sites for development opportunities

This article was first published in 99.co.

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