Guide to Buying Commercial Property in Singapore
When it comes to investing in a property, most people would prefer to buy a residential over commercial property because it’s just so much easier. With the implementation of tighter Additional Buyer’s Stamp Duty (ABSD) rules in the 2018, it has become even more restrictive to buy a second or subsequent residential property.
As such, you may be wondering if it makes more sense to invest in commercial property instead. Even you won’t have to pay ABSD for commercial property purchases, this shouldn’t be the main basis for your decision as it’s important to understand the risks of buying a commercial property, because remember, it’s a big-ticket item that involves a lot of funds.
What is a Commercial Property?
Commercial property is a building mainly for business purposes or work. For the property owner, it is used to generate profit, either through rental income or capital gains.
There are three types of commercial properties: retail, industrial and commercial, and hotel:
Retail - Shopping malls, pet shops, gyms, restaurants, bars, shophouses, HDB shophouses
Industrial and commercial - B1 (Offices, warehouses), B2 (factories)
Hotel - Hotels, hostels
Things to Consider Before Buying a Commercial Property
Which Commercial Property Type Should You Choose?
Can You Change the Property’s Intended Use?
Does the Location Matter?
Do You Need to Pay ABSD?
Do You Need to Pay Seller’s Stamp Duty (SSD)?
Can You Use Your CPF to Finance The Property?
How Much Can You Borrow?
What Other Costs Do You Need to Consider?
Lease for Commercial Properties
Do Commercial Properties Have Higher Rental Yields?
Benefits of Investing in Commercial Property
No Additional Buyer’s Stamp Duty (ABSD)
No Seller’s Stamp Duty (SSD)
You can claim back the Goods and Services Tax (GST)
Low Commercial Property Prices
High Rental Yields
What are the downsides of buying commercial property?
Understandably, there are some disadvantages of buying commercial property as well.
Below I’ve listed some of the main drawbacks:
Higher down payments required
A more volatile market
Higher utility costs (internet, electricity, maintenance, etc.)
Banks can be pickier and take more factors into consideration before granting loans
Commercial Property Taxes
Singapore is famous for having low corporate taxes, unfortunately, that doesn’t apply in the real estate market.
Below I’ve listed the most notable taxes you need to pay when buying commercial property.
Buyer’s Stamp Duty
Even if you don’t need to pay the Additional Buyer’s Stamp Duty (ABSD), a Buyer’s Stamp Duty (BSD) applies.
The rate decreases progressively, depending on how long you hold the property.
The rates are currently as follows:
1% of the first SGD 180.000
2% of the second SGD 180.000
3% of the remaining value
Annual Property Tax
A property tax is levied at 10% of the annual value. The annual value is calculated based on the yearly estimated rental income.
If you want to check your property’s annual value of the current or previous five years, you can visit IRAS’s website.
Capital Gains Tax
Capital gains tax is normally not charged for residential or commercial property.
You might be subject to capital gains tax, in case you “trade” or speculate on the property market. Each case is treated individually.
Can a foreign company buy commercial property in Singapore?
Yes, foreign companies can buy various kinds of commercial property without special approval from the Land Dealings Approval Unit of Singapore Land Authority (SLA), including hotels, industrial real estate, and shophouses.
Can I use my Central Provident Fund (CPF) to buy commercial property?
At the moment, you cannot use your CPF to finance a commercial property purchase. You can only use it when buying residential real estate and to repay interests, for example.
CPF is an employment-based savings scheme supported by employers and employees. It’s important for Singapore’s social security system and serves to meet retirement, housing, and healthcare needs.
Can Foreigners Buy Commercial Properties in Singapore?
Singapore might be one of the most expensive places to buy property in Asia, but it’s also one of the best in terms of foreign property ownership rights.
Yes. While there are restrictions for foreigners when it comes to buying residential properties, there are no such restrictions for commercial properties.
In fact, according to the Residential Property Act, foreigners can buy the following commercial properties:
Shophouses (for commercial use);
Industrial and commercial properties; and
Hotels (registered under the provisions of the Hotels Act)
So what’s considered a foreigner in Singapore? The government defines foreigners as persons or entities that are not:
Singapore limited liability partnerships
As shown on the Singapore Land Authority’s (SLA) website, foreigners have no issues buying commercial property in Singapore.
Commercial property has become increasingly popular in Singapore, especially since the government introduced its Additional Buyer’s Stamp Duty (ABSD) for residential property, trying to cool down the market.
Buying commercial property brings you higher rental yields, averaging at around 5%. Even if the market is more volatile, the commercial property market is less crowded and offers more opportunities for investors.
One of the greatest benefits of buying commercial property is that taxes are either reduced or removed. You can also reduce taxes further by investing through a local company.
Just be sure to hire a credible real estate agent and a solicitor that can guide you and help you through the buying process.