From saving in a bank to engaging in stock market trading, investments come in various forms, each requiring a distinct level of time and effort. Real estate investment emerges as a compelling option for those seeking ventures with a longer time horizon. In particular, investing in commercial property in Singapore offers an opportunity to diversify one’s portfolio and secure a stable income stream.
However, navigating the intricacies of commercial property investments can be a legal and financial challenge, especially for the uninitiated. Due to the variety of property types and deal structures to navigate, it is imperative to approach this endeavour carefully.
To address this, we’ve compiled a checklist of critical factors every commercial property investor must consider before taking the plunge. Additionally, we will discuss how experienced property agents in Singapore assist investors like you to identify and secure lucrative commercial property deals.
Clear Investment Purpose
When investing in commercial property in Singapore, you must establish a clear action plan and define your investment purpose. Do you seek steady cash flow or substantial capital gains from your investment?
For instance, if you want to generate a consistent cash flow, consider exploring commercial shophouses in Singapore. These versatile properties often offer rental income from diverse businesses, providing a reliable monthly revenue stream. Conversely, strategic investments in prime commercial areas may prove lucrative in the long run if you aim for significant capital gains.
Balancing Budget and Financing
When venturing into commercial property investment in Singapore, striking a balanced and conservative approach to your budget and financing is essential. Considering your investment goals not only aligns with your goals but also uncovers crucial insights like asset size, type, and location.
Commercial deals often involve substantial costs, and your capital becomes committed to a longterm investment plan. While intricate arrangements may typically be restricted to high-income individuals or accredited investors with significant assets, there are various avenues for all investor profiles.
To initiate your journey, thoroughly assess the following financial aspects:
• Cash flow
• Financing options
• Financial commitments
• Projected cash flow
• Cash reserves
Commercial Real Estate Market Trends
Savvy investors analyse critical metrics like average tenant rents, price per square foot, cap rates, and recent sale prices of similar properties in the area. Be aware of the demand for specific property types, be it office or retail spaces.
While commercial real estate is relatively stable, market changes can impact vacancy rates, rentals, and occupancy stability. For instance, the Covid-19 pandemic highlighted the effects of remote work on office space rentals.
Property Characteristics
It’s also crucial to thoroughly assess the specific characteristics of each property before making a decision. Consider factors such as size, infrastructure, amenities, layout, and overall condition. While some properties may be ready for immediate commercial use, others might require upgrades or additional investments to meet your requirements.
Projected ROI
Estimating the potential return on investment (ROI) of a commercial property requires careful
consideration of several factors:
• Occupancy – Analyse the property’s historical occupancy rates and potential to attract
future tenants.
• Rental rates – Evaluate the property’s current and projected rental rates to understand its
income-generating capacity.
• Projected appreciation – Consider the property’s potential for capital appreciation over
time.
• Value add opportunities – Identify any opportunities to add value to the property, such
as renovations or improvements.
Taxes in the Real Estate Market
While Singapore is renowned for its low corporate taxes, the real estate market follows a different taxation framework. When buying commercial property, it’s crucial to be aware of the notable taxes you need to consider:
• Buyer’s Stamp Duty (BSD) – BSD applies regardless of whether you pay Additional Buyer’s Stamp Duty (ABSD). The rate progressively decreases based on the duration of property ownership.
• Annual Property Tax – Commercial properties incur a yearly property tax of 10% of the property’s annual value. This value is derived from the yearly estimated rental income. You can visit IRAS’s website to check your property’s annual value for the current or past five years.
• Capital Gains Tax – Generally, capital gains tax is not applicable for residential or commercial properties. However, if you engage in property trading or speculation, you might be subject to capital gains tax. Each case is assessed individually.
Understanding and planning for these taxes is crucial for budgeting and ensuring a sound financial strategy when investing in commercial property in Singapore. Seeking professional advice can also provide valuable insights and help optimise your tax situation for a successful and rewarding investment experience.
Loans
Like residential property purchases, you can secure a property loan when investing in commercial property in Singapore. However, the loan application process and criteria differ due to the commercial property market’s higher volatility, which relies more on the economic climate.
Several factors influence the loan approval process, including the property’s estimated future value, intended use, geographical location, industry performance, and more. Each bank assesses these elements differently, so it’s advisable to contact them individually to explore their loan offerings. Typically, banks may cover up to 80% of the property’s value.
To increase your chances of approval, ensure you have a well-structured business plan, a strong credit score, and all necessary documents to demonstrate your credibility as a borrower.
Finding the Right Commercial Real Estate Agent
A reputable and experienced agent can provide quick access to multiple proposals so that you can expedite your commercial property search. In particular, a responsive agent is crucial when representing clients in need of urgent information.
While browsing listing websites can be less efficient, partnering with a reliable agent unlocks access to a broader range of options, including sought-after commercial shophouses. These experts possess in-depth knowledge and can guide you through various property types, from hotels to office spaces, catering to your specific investment requirements.
Partner with Shophouse Collective for Your Commercial Property in Singapore!
Investing in commercial property in Singapore requires informed decision-making and strategic planning. To help you work through crucial factors and invest in the best Singapore shophouses for your business goals, Shophouse Collective is here.
With our specialised knowledge and experience in conservation shophouse sales and purchases, we are committed to helping you find the ideal Singapore shophouse that aligns perfectly with your business goals. Let Shophouse Collective help you pave the way to your successful commercial property investment venture. Reach out to our team today!
