Recently, met up with an old classmate of mine, who just purchased a commercial property for investment purpose. I thought it will be great if he can share some of his experiences when buying commercial property. We put up some quick tips for you:
1. Tenure: most commercial properties in Singapore are either 60 years or 30 years. However, he said he is not too concern about this because as long as the rental can cover the mortgage and earn some extra. He literally do not have to fork out anything.
2. Rental Income: next, does the property comes with rental income which can cover the mortgage. If not, does it has rental potential. What is rental potential, I asked? For rental potential, he looked at one key factor, that is location. Is it near to MRT or future MRT or easily accessible by public transport?
3. Is the property GST Registered?: If you are purchasing the property from a GST registered company, do factor 7% into your budget. For a $300k 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 out IRAS website on your obligations for being GST registered. The requirements are quite long.
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 which you have to pay 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. And if you are buying as an investment, you could probably borrow up to 70%. For personal use, will be 80%. Tenure usually range 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 I choose? My friend’s advice is choose one with good rental income afterall its investment. It must have potential to be rented out or for sale in future. Just like buying a residential investment property.