Property investors in Singapore typically focus on buying residential properties, but do you know that you can invest in commercial properties as well? In fact, after property-cooling measures were introduced in 2013, property investors started looking at commercial properties because they do not incur additional buyer’s stamp duty (ABSD). This article will give you a primer to the different types of commercial properties available for purchases, and some advantages they may offer compared to residential investments.
Most of us work in office spaces, and it may not be surprising that these spaces are usually leased. Unlike retail spaces which are affected by online shopping, the demand for office spaces are less affected since businesses, even startups, require offices to operate in.
Office spaces can be classified such as Grade A, B and C. Without getting into technical details, the differences between the different classes comes down to the type of building features, facilities available as well as the building services provided (CCTC, security..etc).
Offices in prime locations such as Raffles Place typically calls for a premium, but the good news for investors is that you can still see demand in suburbs like Jurong and Woodlands from businesses seeking lower rentals.
When you walk into a shopping mall in Orchard Road, most of the malls belong to a single developer. But consider the ones at People’s Park Complex and Golden Mile and you’ll likely see a difference. Strata-titled property refers to a property whose building has been subdivided into different divisions and ownership. For such developments, you’d want to look out for good foot traffic in order to attract potential tenants.
Mixed development is a type of property that combines residential and commercial spaces in one. They can come in the form of a single building or a complex of buildings that forms a community.
Residential units with a shopping mall is the most common type of mixed development in Singapore. For investors, buying a commercial property in a mixed development can be rewarding as tenants can be assured of demand if their services are popular with the residents living in the precinct.
Warehouses, factories and industrial buildings belong to the class under industrial property. Industrial buildings are categorised as Business 1 (B1), Business 2 (B2) and Business Parks. Industrial buildings are typically quite expensive and increasingly becoming public-owned.
Tenure period for industrial properties are usually either 30 years or 60 years. Since their tenures are shorter, they typically command a higher rental yield as compared to other types of properties.
Medical tourism is a high-growth industry in Singapore – its state of the art medical facilities, affordability, as well as accessibility has made medical suites somewhat of a great investment for property investors. On top of this, an ageing population also means the demand for medical facilities will grow, especially for the affluent demographics living here. With increasing demand coupled with limited supply of land use that is carved for medical establishments, it could be a class of property worth looking into.
Why Invest in Commercial Property?
- No Additional Buyer’s Stamp Duty(ABSD)
One of the main reasons why an investor should consider commercial over residential property is that the purchase does not incur ABSD. For Singaporeans who already own a residential property of their own, buying a second residential property will incur a 12% ABSD. That’s $120,000 on a property worth $1 million. For foreigners, buying the 1st residential property will incur a 20% ABSD.
- Sell without incurring Seller Stamp Duty(SSD)
Home owners selling their residential property within three years have to pay the Seller’s Stamp Duty (SSD), ranging between 4% to 12% depending on the holding period. Buyers of commercial properties can however sell their property anytime without incurring the SSD.
- Makes business sense
If you are a business-owner, buying your own commercial unit for operations can make good business sense. Essentially, buying over the unit means you no longer incur rent, which is usually not within your control, leaving you at the mercy of the landlords to increase rental rates.
You can claim back the Goods and Services Tax (GST)
You normally need to pay a Goods and Services Tax (GST) of 7% when buying commercial property. It’s similar to the Value Added Tax (VAT) that we use in Europe and the US, for example.
If you buy commercial property as an individual in Singapore, you have to pay GST. However, if you buy a property through setting up a company, you can claim back the GST later and the GST can be avoided.
Just be sure to talk with the Inland Revenue Authority of Singapore (IRAS) beforehand, to know whether you’ll be able to claim it back later.