Looking to Invest in a Commercial property in Singapore? Here are the Key things you need to know!

Investing in commercial property in Singapore can be an attractive option for many, given the limited space and high demand for real estate in our densely populated nation. One of the more common things you hear people shout online being “BUY COMMERCIAL GOT NO ABSD” is one of the reasons why Singaporean Real Estate investors turn to Commercial properties. Investing in more than 1 Residential property comes with a very hefty additional buyers stamp duty (ABSD). Unlike the more commonly discussed residential properties, commercial real estate offers unique opportunities and considerations. This includes spaces such as retail shops, food and beverage outlets, and office buildings.

For those considering a commercial property purchase, it's important to understand the distinction from residential property ownership. For instance, when acquiring commercial real estate, it's common to either rent it out for income or use it for business purposes. This could be especially beneficial for small business owners, who might opt to buy a property instead of leasing. The idea is similar to buying a home to live in rather than renting, with the added benefit of potentially paying 'rent' to oneself through a commercial property loan.

Here are the key factors to consider before  investing in commercial property in Singapore

Financial Requirements for Commercial Property Purchase

Unlike residential properties, you cannot use CPF savings to buy commercial real estate. All costs, including down payments, mortgages, stamp duty, and legal fees, must be covered in cash. Commercial property loans may cover up to 80% of the property value, which is slightly higher than residential property loans. However, loan approval and loan amount still largely depends on the lender's assessment of your ability to repay the loan.

Additional Buyer’s Stamp Duty (ABSD) DO NOT apply!

A significant advantage of commercial property investment is the exemption from ABSD, which can be very substantial for residential property investors. However, commercial properties are subject to the usual Buyer’s Stamp Duty (BSD), which, despite being lower than that for residential properties, is still a cost to consider. The current tiered BSD rates are
- 1% on First $180,000 of Purchase Price
- 2% on Next $180,000 of Purchase Price
- 3% on Remaining Amount

Flat Property Tax Rate

Commercial properties are taxed at a flat rate of 10% of their Annual Value (AV), regardless of their use. Take note that this is typically higher than the tax for owner-occupied residential properties. This means that if the annual value of your property is $20,000, your Property tax on the commercial property will be $2,000.

Which Commercial Property is Right for you?

Simillar to Residential properties, the location and unit you select is extremely important. But the considerations are slightly different from selecting a good residential unit! Apart from the Location and future development plans which crucial in commercial property selection, proximity to transportation hubs and understanding changes in zoning or plot ratios can significantly impact the property's future value. The property type, be it industrial or commercial and its tenure also play a crucial role in investment decisions. Similar to residential properties, if you are purchasing a commercial unit for investment, the entry price is also a key figure to look out for.

Equity Building for Business Owners

One of the parties that would benefit the most in a commercial property investment are actually business owners who need an office space. For many business owners that need a physical office space to operate, purchasing commercial property can be a financially sensible move. This allows businesses to build equity in an asset they own, rather than paying rent. Simillar to the concept of buying a home rather than renting a home, if one has enough capital to pay the down payment, paying the mortgage to an asset usually beats paying rent. This equity can also be leveraged on for future financing needs. The same property can also be rented out in the future if it no longer suits the business, providing an additional income stream in rental yield.

So… Should I buy a Commercial Property in Singapore as an investment?

For both investors and business owners, understanding the financial implications, including loan options and potential returns is very crucial. In the current economic climate, commercial property prices have shown different trends compared to residential properties, presenting unique opportunities for investors.

In summary, investing in commercial property in Singapore requires careful consideration of financing options, tax implications, property selection, and long-term strategic planning. It's a decision that can offer substantial benefits but needs to be approached with a thorough understanding of the market and financial commitments involved.

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