7 things you have to consider when buying commercial properties:
1. Tenure
Most Singapore commercial properties have 60 years leasehold or freehold. If you are an buyer, it will be ideal to work out what suits your budget. Naturally, a leasehold property will be cheaper. However, you don’t have to be more concern about the tenure as long as the rental can include the mortgage and can provide cashflow. You don’t have to fork out any cash except the initial downpayment.
2. Rental Income
The next thing you have to consider if the property has a rental income (i.e. tenant) which can cover the mortgage loan? If not, does it possess a potential to acquire good rent? For rental potential, you have to look at one key factor – location. Is it near to MRT station or is it accessible to public transport?
3. Is the property GST Registered?
If you are purchasing the property from GST registered company, do factor the 7% GST into your budget. For a $300,000 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 are the owner of the company, you could register your company under GST, to reimburse you the amount you pay. Howecevr, before you do this, please check the IRAS website for updates concerning the various requirements before registering in the GST.
4. Property Tax
When computing your rental yield do factor in the property tax which is 10% for commercial property.
5. Other Related Costs
Include management fees and renovation costs should you need tidy up the place a little.
6. Mortgage Interest Rates
Compare what is available in the market. Rates varies if you buy as an individual or under a company name. If you are buying for investment, you could borrow up to 70% of the property value. For personal use, you may be able to borrow up to 80%. The loan terns usually ranges between 15 to 20 years. Usually, Singapore commercial properties 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 various types of commercial properties such as B1 Industrial, warehouse etc. The difficult part is which one you should choose? Choose the one with good rental income – after all it’s an investment. It must have goo potential in terms of rental income and for selling in the near 7future, just like if you were buying a residential investment property.