When it comes to investing, residential properties are often more preferable for individual investors. Commercial properties in Singapore are just as good a choice, In spite of this, many foreign buyers are hesitant to enter this market. Adding Singapore commercial properties to your portfolio has a positive impact on your returns.
Partner up with an experienced Singapore commercial property agent, and they’ll make the process really easy for you. But choose someone who has experience in assisting foreigners in buying commercial properties in Singapore, because of different regulations.
If you are interested in commercial property investment in Singapore, here is what you should know.
Why should you think about commercial properties?
Simply because the yields are higher as compared to residential properties. And for commercial properties without residential component (Full commercial title) you don’t have to pay any Additional Buyer’s Stamp Duty or ABSD like you do when buying residential properties in Singapore as a foreigner. You will also not have to pay any Seller’s Stamp Duty if you sell your investment property within three years of purchase.
Commercial Property Types
Determine which kind of commercial property would be the best for future returns and budget. Options include office space, hotel, retail shop and shophouse. Whichever of these you choose, the property should be in a healthy condition, meaning that it can be rented out and sold easily.
Investors with a larger appetite may consider older buildings within the prime location that have the potential for refurbishment or redevelopment, thereby maximizing their value and gross floor area.
Ever thought about buying an office space and then renting it out? Since 2013, office prices seem to have risen according to the URA Property Price Index.
The government has plans to decentralize commercial activities, which means office jobs will spread out from the central areas. New commercial property developments are emerging in areas like Paya Lebar, Woodlands and Jurong East.
Although there is no official statistic on the number of strata office space in Singapore, an estimation of 14% of office supplies are strata titles: the term refers to individual titles for office units in a high-rise building that shares common facilities.
What does this mean for you as a foreign investor? It simply means you can invest in single office unit easily now.
As a foreign investor, you should know that office space falls into three categories Grade A, B and C, with Grade A office space being the most premium and highly sought after by businesses.
Talk to a commercial real estate agent and they may be able to give you accurate estimates of your income a year or several years from now.
If you are considering retail spaces, there are only around 60 strata titled shopping malls in Singapore that are strata titled. Generally, they are not such a great choice for investment purposes, especially since the ecommerce industry has bloomed. The only shop spaces you should considered are those which are suitable for the food and beverage industry.
Conservation shophouses are kind of rare in Singapore. They were constructed between the years 1820s and the 1960s, and generally feature two or three storeys. Shophouses are often sought for their historical architecture, rustic charm and rich heritage value.
Conservation shophouses in Singapore can be classified into two types: one of these has a shop on the ground floor, whereas the upper floors are all for residential purposes, the second type also has a shop on the ground floor, but the upper floors are for commercial use.
For foreigners, the latter is a better investment option, as it is a full commercial property title, and therefore does not incur the hefty stamping fees. Most of these are usually available at a premium price.
In the recent years, we are seeing funds and international high-net-worth picking up conservation shophouses in the prime areas such as Boat Quay, Amoy Street, Telok Ayer and Chinatown.
Commercial Real Estate Price Trends
Unlike residential property prices, commercial property prices were not really affected by the multiple cooling measures introduced from time to time. However, economic conditions do have an impact on this segment.
Economic cycles are more predictable, along with vacancy rates and upcoming supply, which make it possible to predict the ups and downs of commercial property prices.
When looking at a potential investment, consider land zoning, approved use classes and future development plans in the area since they can greatly influence the value.
Consider Rental Yields
This is one of the key reasons you invest in the first place, so the rents should be impressive enough. But you wouldn’t know this until you do some research. Find out the average monthly rents of all areas that you are interested in. Consider the property type, the amenities available and transport connectivity as well because all these factors affect value.
If you are investing in a retail space, you should evaluate walk-in traffic, and if it’s an office space, then figure out the impact of building décor and maintenance, which increase rents.
A commercial real estate agent can provide you with estimates of your rental income based on all consideration factors.
Don’t Forget GST
In case you have been investing in residential properties and are considering investing in commercial real estate for the first time, you may have forgotten about the Goods & Services Tax (GST).
Residential real estate transactions generally do not involve GST, but commercial properties often require buyers to pay GST on top of the purchase price.
There are, however, ways to get around this. Generally, your commercial property agent in Singapore will be able to provide you with recommendations.
If you are the first buyer of a commercial property, you do have an advantage in terms of greater capital appreciation during the early years. This is when you enjoy the maximum gains.
But there are of course, some trade –offs as well. Some projects may be new and not tested, so you will have to face a few risks.
A new development may take some time to generate rental income for your investment property, so make sure you can repay the loan even without rental income for months.
Are you ready to invest in commercial real estate in Singapore?
Talk to a qualified and experienced commercial real estate agent in Singapore if you are interested.
At Owee Commercial Real Estate, we have been helping out foreign buyers with purchasing and selling any kind of property. Our services expand a wide range including deal sourcing, advisory and rental property management. Browse our website for more information.
Nic is the Executive Director and Key Executive Officer (KEO) of Owee Commercial Real Estate Pte Ltd. Nic starts his real estate career in 1995. He focuses in providing real estate services specifically to international high net-worth individuals and corporate clients. His expertise includes commercial properties finding, property investment planning & acquisition, managing buy to let property and tenant representation for office space.