Commercial vs residential property

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Investing in a commercial property offers exciting opportunities, most investor tend to stay away from commercial property investment because of lack of understanding in the topic.

Commercial property refers to office and retail space and industrial properties like warehouses and factories. Sometimes investing in commercial properties can be quite affordable  sometimes costing less than residential properties.

What is the key difference?

Leasehold

Compare to residential properties, commercial properties like industrial factories can have a shorter leasehold.

Limited purpose

It can be harder to secure a lessee on a property that is designed for a specific purpose. Opting for a property with multi-use appeal can help you attract a broader range of tenants.

Long term lease

Commercial property leases can usually run for much longer periods than residential. This may give you a greater certainty of rental income. But always remember to add the option to review rental at least annually.

Lessee pays maintenance and renovation costs

Unlike residential property, the costs of maintenance, repairs etc on a commercial property are paid by the lessee. When the lessee moves out of the property, he has to return the premise to its initial condition. This means you get to keep more of the rent as profit.

Location

Location is still key to your investment. Commercial properties are mainly use for business. So invest in properties where there good transportation link like expressway and MRT stations, access to workers and surrounding businesses that could offer support to the lessees.

The impact of GST

Good and Services tax (GST) may apply when you buy a commercial property, so do allows for an extra 7% on the property’s purchase price. You can claim GST incurred on commercial properties. More information can be found at www.iras.gov.sg

Property tax

Commercial property tax is higher than owner occupied residential properties. However there are various reliefs that you can claim. You can calculate your property tax here.

Funding your commercial property investment

Most of the available home loans in Singapore work in much the same way as residential properties. Usually most banks will lend up to a maximum of LTV 80%. Unlike a residential property, financing your commercial property must be done in cash and not CPF.

 

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