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All You Need to Know About Commercial Property in Singapore in 2023

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Investing in commercial property can be rather challenging and difficult at times. Often times, the licensing and the regulation can be quite a turn off since business owners hate to paperwork more than anything else. Right?

If this applies to you, relax!

The complete guide to purchasing a business property in Singapore is available here. Whether you are a F&B business owner, foreigner looking to set up a company office, or just want to invest in commercial property. Then this article is for you.

What is Commercial Real Estate?

Singapore has three different kinds of commercial properties: retail, industrial, and hotel.

Among retail real estate are stores, shophouses, and malls. These types of properties requires the most amount of time to understand and work with as it requires stricter regulations. From fire safety licensing to food health safety license, there are quite a lot of regulations to look at.

Workspaces like B1 (Offices, warehouses) and B2 (Factories) are referred to as industrial. Depending on your workplace intensity, it may require a larger space of safety requirements to handle certain situation. For example, if your business is a food packaging firm for a bakery stall, it will require heavy machinery which is classified under the B2 workspace category.

Hotels include both hotels and dormitories. While not as popular as compared to other businesses, they do still require a number of licensing and pass certain regulation to set up. For example, in practice, dormitory rooms can only have 12~16 pax per room to give dorm worker more space to work around with.

What are some uses for commercial property?

Commercial property owners have the same options as those who own homes: they can either use the space for personal purposes or rent it out to tenants to earn a monthly rental income.

Who may purchase a business property?

There are no limits on who can purchase commercial property, in contrast to residential property. Foreigners, Singaporeans, and Permanent Residents (PRs) can all buy commercial real estate.

Commercial real estate can be purchased in Singapore by foreign businesses that are registered elsewhere.

Advantages of Buying Commercial Property

Let’s now examine the advantages and disadvantages of buying commercial real estate.

Additional Buyer Stamp Duty (ABSD) is not applicable

You are exempt from paying ABSD for commercial property even if you already own a home. For those who wish to invest in real estate but do not want to pay more for ABSD, the fact that the ABSD for residential property can range from 17% to 35% is a big advantage.

No Seller’s Stamp Duty (SSD) applicable

Owners must pay a tax known as seller’s stamp duty when they sell their property within the first three years of ownership. You don’t have to pay SSD for commercial property, as opposed to industrial property.

Industrial property includes factories and warehouses. According to IRAS, SSD is payable at the rates shown in the table below for industrial property bought on or after January 12, 2013.

Holding PeriodSSD rate (on the actual price or market value, whichever is higher)
Up to 1 year15%
More than 1 year and up to 2 years10%
More than 2 year and up to 3 years5%
More than 3 year and up to 4 yearsNo SSD payable

For instance, Mr. Chong purchased a warehouse in June 2015 for $2,000,000,000 and later sold it for $2,500,000,000. 10% would be applied to the $2,500,000 because his holding time comes within the “More than 1 year and up to 2 years” category. Thus, his SSD would be worth $250,000.

The SSD was introduced in Singapore to prevent buyers from manipulating the markets and as a prevention for buyers to trade commercial real estate.

Cons of Purchasing Commercial Real Estate

Let’s now examine the advantages and disadvantages of buying commercial real estate.

High rate of property taxes

Commercial and industrial real estate used for non-residential purposes is taxed at a flat 10% of its Annual Value (assumed annual rent) rate. The 10% tax rate would apply even if you bought the property for your own personal use.

Unable to finance the property with CPF

Contrary to residential real estate, where you may use your CPF funds for a down payment and a mortgage, you cannot use CPF to buy commercial real estate. In other words, because the down payment and mortgage must be made in cash, you would need a larger initial cash investment to finance the house.

5 Consideration when Buying a Commercial Property

Here are some more elements to think about while purchasing commercial real estate.

1) What kind of commercial property ought I to select?

Commercial real estate is divided into three categories: retail, industrial, and hotel. They differ in a wide range of areas, including leasing, pricing, features, hazards, and rewards.

Consider shophouses. Numerous shophouses in Singapore have the designation of conservation area. There are limitations and procedures protecting the property to preserve its distinctive architectural features. The intended use, alteration, and renovation rules are a few of them. Maximum Retention, Sensitive Restoration, and Careful Repair are the “3R” Principles that conservation shophouses are supposed to adhere to. It is necessary to preserve and maintain the original structure and architecture. Only in extreme cases can URA permit selective replacement.

When choosing the sort of property to buy, buyers should take these limitations into account.

2) How important is location to you?

Every real estate choice is heavily influenced by location. Do you prefer that the condo be close to MRT stations? Expressways? Or do you want to locate your factory in a rural area?

a retail shopping center, as an example. Contrast an Admiralty neighborhood mall with one on Orchard Road. Orchard Road is the first place that people think of when they want to shop. Renting your home to tenants in Orchard Road would undoubtedly be simpler for this reason.

On the other hand, given the nature of the nearby buildings, regions like Changi or Woodlands may be better choices for you if you’re searching for a place to house your manufacturing.

3) What is the intended use of the property?

The URA Master Plan details the planned use and regulations for each commercial property. Knowing what it is intended for is crucial because it is hard to change.

For instance, you must first apply for planning clearance from URA and wait for approval before making the change if you wish to alter the property’s use from retail to office and it hasn’t already been granted.

4) How long has the property been owned?

For commercial real estate, there are several different leasehold tenures available. Due to Singapore’s limited land supply, this is limited and runs from 30 to 999 years.

For the benefit of small business owners, shorter leases of 30 and 60 years are now offered. The government has the freedom to redevelop the area if necessary thanks to the shorter lease.

5) How will the property be financed?

Depending on whether you are purchasing commercial real estate as a person or a corporate entity, financing will vary. The Total Debt Servicing Ratio (TDSR) determines how much you are permitted to borrow in loans.

The TDSR for individuals is set at 60% of monthly income. The annual net operational income and credit worthiness of corporate entities will determine their TDSR. This implies that the loan amount would vary depending on the company. Debt owed by the business will also be taken into account.

Loans for commercial real estate typically have higher interest rates than loans for residential real estate. Here’s a piece of advice: Increase your down payment if you want to lower the total amount of interest you pay!

Although purchasing commercial real estate may initially appear scary, you may now be eager to embark on this ownership adventure after learning more about it. Of course, you should take your time and fully comprehend the commercial sector before moving further.

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