By MoneyIQ (guest contributor)
Recently I met up with an old classmate of mine, who had just purchased a commercial property for investment purposes. I thought it would be great if he could share some of his experiences when buying commercial property, and we’ve put up some quick tips for you:
Most commercial properties in Singapore are either 60 years leasehold or freehold. If you are an investor, it will be best to work out what fits your budget. Naturally, a leasehold property will be much cheaper. However, he said he is not too concerned about the tenure as long as the rental can cover the mortgage and provide some extra cashflow. He literally did not have to fork out any cash post the initial downpayment.
2. Rental Income
Next, does the property come with rental income (i.e. tenant) which can cover the mortgage? If not, does it have good rental potential? For rental potential, my friend looked at one key factor – location. Is it near to a current or future MRT station or is it easily accessible by public transport?
3. Is the property GST Registered?
If you are purchasing the property from a GST registered company, do factor the 7% GST into your budget. For a $300,000 property, your GST is easily $21,000. So if an individual is buying does that mean he has to absorb the GST? Unfortunately, the answer is yes.
However, if you own a company you could consider getting your company GST registered to claim back the amount you paid. But before you do this, please check the IRAS website on your obligations for being GST registered. There are quite a lot of requirements.
4. Property Tax
When calculating your rental yield do factor in the property tax which is 10% for commercial property.
5. Other Related Costs
These include management fees and renovation costs should you need spruce up the place a little.
6. Mortgage Interest Rates
Compare what is available in the market. There are different rates if you buy as an individual or under a company name. If you are buying for investment, you could probably borrow up to 70% of the property value. For personal use, you may be able to borrow up to 80%. The loan tenure usually ranges between 15 to 20 years. Usually, commercial rates are higher than residential rates. There is a possibility that your rental income may not cover the mortgage for the initial period . But usually for a good location, you could command higher rental income.
7. Types of Commercial Property
There are so many different types of commercial properties such B1 Industrial, warehouse etc. which one should you choose? My friend’s advice is to choose the one with good rental income – after all it’s an investment. It must have potential to be rented out and be sold in the future, just like if you were buying a residential investment property.
This article was contributed by guest contributor MoneyIQ, a free Singapore home loan comparison site with mortgage broking services. You can also do a comparison of commercial property rates at their site.