September 22, 2020
Are you considering buying a Commercial Property in Singapore? If yes, you’ll be pleased to know that Singapore has many existing and upcoming Commercial Developments that have been projected to have an excellent appreciation potential.
Now, news like this gets around very fast, and you can expect a lot of investors to compete with you for the same properties. So, we’ve put together a few strategies that you can implement, which will help you nab the best Commercial Properties quickly:
I. Evaluate the health of the property you want to invest in.
When we say “health” of the property, we’re referring to those characteristics that increase the commercial development’s potential valuation. In Singapore, several affect the health of the build, such as:
- Building grade – Grade A builds offer the highest returns, while Grade B builds are an excellent investment for new buyers.
- Connectivity – Properties near MRT stations and bus exchanges appreciate faster,
- Location – Commercial properties located close to Central Business District (CBD) regions like Raffles Place, Marina, Orchard and Downtown Core, make the most valuable investments because the demand for such centrally-located properties never ceases to exist.
- Accessibility & amenities – Properties that come fully-fitted with state-of-the-art amenities and which are accessible to differently-abled individuals have a high appreciation rate.
- Tenure – In Singapore, commercial properties typically come in two tenures – the 99-year and the 999-year. It makes sense to invest in a property that is still at the start of its tenure.
- Rental income – Rents increase proportionately to the location, grade and connectivity of the building. A higher rental yield will also allow you to repay your commercial mortgage quickly.
You should consider investing in companies which can offer you greater rental yields and also an excellent sale potential.
II. Choose a Property that has more Units Available.
Just like elsewhere, demand and supply determine the sale price of commercial developments in Singapore. Since the Singapore real estate market is growing at a tremendous pace, sellers of commercial developments have a very large buyer base to choose from. They may hold out on the property and wait for a better offer to come along, especially if they have limited units or builds available.
The best way to get a great property and at friendly terms is to look for commercial units that are greater in supply. For example, you can invest in a few units within a business centre, where multiple units are still for sale. You then have the option of pushing down the asking price.
Additionally, consider the future transformation potential of the neighbourhood the build is located in. It may not be in the Central Business District (CBD) like you wanted, but it could be near enough - with the Government having plans to improve connectivity through MRT stations or new roads – making it a great long-term investment. Districts 23, 25 & 26 are great places to consider.
III. Invest through a Company and Not Individually.
Singapore has a much friendlier taxation policy for companies than it does for individual investors. This is why it makes sense to invest through a company, rather than purchasing the property under your name.
Take the 7% GST for example. As a corporate buyer, you can claim back a certain percentage of this GST after the purchase of property (including any conveyance, construction, development and professional expenses associated with the purchase of a non-residential property).
Additionally, companies that can prove that they have a steady and positive cashflow, who can substantiate this with previous financial records and who can provide personal guarantors for their mortgages, can get a percentage of their Total Debt Servicing Ratio (TDSR) exempted. This isn’t possible for individual investors.
IV. Check for the Property’s En Bloc Potential.
Singapore has a thriving real estate market, but it’s important to note that land is very scarce here. This makes properties that have an en bloc potential a great investment for buyers.
Usually, once Singapore properties cross the 30-year mark, they value equal to or higher than the value of the land they stand on. Additionally, older neighbourhoods tend to go through transformations, with business hubs and transport facilities cropping up around them, increasing the value of all the properties in the locality. This also has a positive impact on rent, with commercial rental yields higher than in newly-built localities. If your property is well-maintained, the buyer wouldn’t even have to spend a lot on renovations, making your En Bloc offer very enticing.
When you vet commercial developments for purchase, consider the En Bloc value of the property. Collective sales give you the opportunity to obtain gains on your property, through sale to the highest bidder.
V. Consider Investing in a REIT.
If buying a property by yourself isn’t on the cards, a REIT may be a good solution.
A Singapore Real Estate Investment Trust (REIT) is a registered company that pools multiple investors’ money and uses it to invest in, own and operate Singapore properties. Many commercial real estate investors use the REIT route to invest in commercial builds.
REIT’s are a great way to co-own multiple properties, diversify your portfolio and limit your investment risk. Once the property is rented out, you receive a portion of the rental yield (called distribution yield), and when the property rises in value, you enjoy the gains along with other co-owners. If you’re not interested in keeping the investment anymore, you can trade-in your share of the ownership and exit.
Singapore’s REIT market is highly-regulated. However, it’s imperative to remember that REIT management fees can be high (0.1%-0.5% of the property value is the base fee, 1% of the purchase price is the acquisition fee and 0.5% of the sale price is the divestment fee). Also, prices of REIT stocks are just as volatile as any other stock on the stock market, making them risky.
VI. Choose Real Estate Agents who are experienced in Singapore Commercial Real Estate to help you make the Right Decision.
Finally, all investors planning to purchase commercial real estate in Singapore should actively solicit the expertise of licensed agents or agencies. It’s best to seek help from an Agent/ Broker that’s specialised in Commercial Real Estate since they’re more likely to be abreast of the latest changes and trends in the Singapore commercial real estate market.
Additionally, a few commercial Real Estate agents, like Singapore Commercial Space, represent many of the highest-valued commercial developments in the country. You can learn about new-to-the-market properties and get access to these builds before others do. There’s also the added advantage that experienced and licensed agents like these, work according to the letter of the law and you won’t face any legal issues with your new investment, at a later date.