Guide To Commercial Property Investment In Singapore

Commercial property can be a viable choice for real estate investors. Find out what you need to know about commercial property investment in Singapore. 

With red-hot prices in Singapore’s residential property sector inspiring stiff cooling measures, real estate investors may be considering commercial property investment as an alternative. 

One of the most compelling arguments for this option is the lack of the notorious Additional Buyer’s Stamp Duty, which can go up to 30% if you’re a Singaporean and a whopping 60% for foreigners. 

But headline-grabbing taxes aside, what does commercial property investing in Singapore actually entail? And what are the key considerations you should make before investing?

Table of contents

• Understanding commercial property investment in Singapore
  • What is considered commercial property in Singapore?
  • Types of commercial property for investment in Singapore
  • Where to find commercial property for investment?
  • Can foreigners invest in commercial property in Singapore?
• What to consider before investing in a commercial property
  
  • Affordability
  • Location and intended use
  • Stamp duty, property tax and other charges
  • Investing in commercial property vs residential property – key considerations
  • Rental yield
• Frequently Asked Questions (FAQs)

Understanding commercial property investment in Singapore

What is considered commercial property in Singapore?

Commercial property refers to properties that are not used for residential purposes. Instead, commercial properties are designed to serve the needs of businesses and consumers, providing the infrastructure necessary for the conduct of commerce. 

Generally, properties in Singapore are classified for either commercial or residential purposes. Nonetheless, mixed-use properties can also be commonly found, serving both residential and commercial needs. 

Types of commercial property for investment in Singapore

Commercial properties may be stored into three categories, as follows:

Note that offices and warehouses are classed differently (B1) than factories (B2). This segregation relates to zoning regulations and influences where the property may be sited. 

Where to find commercial property for investment?

If you’re planning to purchase an existing commercial property, you can look through online listings such as 99.co, or CommercialGuru. You can find detailed information on the property, some photos, and contact details to arrange for a viewing. 

Developers who are looking to build new commercial properties can check for the latest government land sales announcements on the Urban Redevelopment Authority (URA) website. New land parcels for both residential and commercial projects are released once every six months. 

Can foreigners invest in commercial property in Singapore?

Yes, foreigners are allowed to invest in commercial property, but there are some restrictions to observe. Specifically, foreigners may purchase 

• Shophouses for commercial use only 
• Hotels under the provisions of the Hotels Act
• Industrial and commercial properties

In regards to property or land that is zoned for mixed commercial and residential use, foreigners will have to seek government approval before investing. This change was introduced in 2023, in which mixed-use land and properties were reclassified as residential properties. The purpose was to ensure land use zones are up to date with URA’s prevailing zoning terminology, and eliminate misinterpretations. 

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What to consider before investing in a commercial property

Affordability 

Investing in commercial properties can be very costly, requiring a high capital sum. Under prevailing rules, commercial property loans are capped at 80% loan-to-value. This means you can only borrow up to 80% of the property’s selling price and will have to fund the remaining 20% in cash. 

This typically means a large cash outlay upfront and having to manage large monthly repayments. If you’re applying for the commercial property loan as an individual, note that the monthly repayments will count towards your Total Debt Servicing Ratio, which is currently 55% of your monthly income. 

This may present an obstacle if you do not have a large monthly income. 

Location and intended use

One of the main considerations when choosing real estate for investment is the location. This is because shops, restaurants, cafes and other retail properties require a reasonable level of footfall, which is majorly impacted by accessibility to public transport. 

Another consideration is zoning regulations. If you intend to purchase a factory with plans to turn it into, say, an art gallery, you may not be allowed to do so if the location does not adhere to URA’s zoning rules. 

Therefore, it is essential to check what intended usage is allowed for the property and whether any change would be allowed. 

Stamp duty, property tax and other charges 

Buyer’s Stamp Duty

You’ll need to pay the Buyer’s Stamp Duty, which is tiered according to the purchase price of the property or its market value, whichever is higher. For non-residential properties, the top-tier rate is 5%. 

Additional Buyer’s Stamp Duty (ABSD)

Purchasing commercial property does not require Additional Buyer’s Stamp Duty. This is one of the advantages of investing in commercial property instead of residential real estate. 

Property Tax

Property tax is payable each year on commercial properties owned. This is charged at a flat rate of 10% of the annual value, which is the gross yearly revenue the property is estimated to generate if rented out. 

The annual value of your commercial property is derived based on the market rental value of similar properties in the vicinity. 

Seller’s Stamp Duty

If you sell your commercial property, the Seller’s Stamp Duty (SSD) is payable. However, this only applies to industrial property or land bought for industrial purposes. 

How much to pay in SSD depends on the holding period – i.e., how long since you purchased the property. See the following table.

Goods & Services Tax (GST)

Lastly, let’s not forget GST, which is payable on the purchase of the commercial property. Note that this must be paid in cash only, so it is essential to plan ahead for this as well, given the high sum involved. 

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Investing in commercial property vs residential property – key considerations

In comparing whether to invest in commercial property or residential property, the main factor is affordability. Commercial properties are significantly more expensive than residential properties, and require a higher capital sum to start investing. 

Next, it is crucial to consider the policies surrounding both types of properties. 

Residential properties are tightly controlled to discourage market speculation and control prices for homeowners. Foreigners have to pay ABSD, as do Singaporeans purchasing additional residential properties beyond their first one. Selling residential properties within three years of purchase will also incur additional taxes in the form of SSD.

These regulations make it more difficult to own a portfolio of several residential properties for investment or to profit from flipping properties in quick succession. 

In contrast, commercial properties are much less restricted. There is no ABSD payable, and SSD is only chargeable for selling industrial properties within three years of purchase. 

Read more: Stamp Duty Singapore: BSD, ABSD, SSD And How They Affect You

Rental yield 

Importantly, investors should consider the rental yield on their commercial property, which will determine how profitable your investment will be. 

Rental yield is calculated using the following formula:

• (annual rental income/property value) x 100 = rental yield

Care must be taken when determining the property value used in the calculation. Rather than simply how much you paid for the property, you should also add in one-time costs such as furniture and renovations. Don’t forget to add in expected ongoing costs, such as manpower (security guards and cleaners, etc), maintenance and repairs. This will give you a true reflection of your investment. 

For a more accurate result, one-time costs may be spread out over a reasonable time period. Assuming you spent S$200,000 on renovations, which are expected to last 10 years, you can use a yearly cost of S$20,000 to calculate your rental yield. 

As for ongoing costs, you may only realise how much they truly cost after some time has passed. Hence, it’s better to err on the high side when calculating your rental yield. 

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Frequently Asked Questions (FAQs)

Can you use CPF to buy commercial property in Singapore?

No, CPF monies may not be used to buy commercial property in Singapore. Only residential properties are allowed.

Read more: 8 Investments You Can Make Under The CPF Investment Scheme (CPFIS)

How much can you borrow to invest in commercial properties?

In Singapore, commercial property loans are capped at 80% loan-to-value. This means you will only be able to borrow up to 80% of the property’s selling price. 

What are the leases like for commercial properties?

Commercial properties usually come with much shorter leases of 30 or 60 years. Freehold properties may also be found, usually in prime areas, and come with a premium.

Is commercial property worth investing in?

Commercial property can be a worthwhile investment, but active management is required. This ranges from ensuring proper upkeep of facilities, to picking the right tenant mix. Ultimately, the returns on your investment is tied to the success of your tenants. 

What type of commercial property is most profitable?

The profitability of a commercial property is influenced by economic cycles and business demand. Hence, it is important to consider the greater macroeconomic background when choosing which type of commercial property to invest in. 

Keeping track of supply and demand levels can be helpful in determining future profitability.