Property investment in Singapore has always been a preferred avenue, with residential properties taking the lead due to their perceived ease. However, recent adjustments to the Additional Buyer’s Stamp Duty (ABSD) rates in the April 2023 property cooling measures have tilted the scales, making subsequent residential purchases more financially demanding. In light of these changes, the spotlight turns to an alternative: commercial properties in Singapore.

Thus, you as an investor might be contemplating whether it is more prudent to invest in a commercial property in Singapore. Considering that there is no ABSD for commercial property acquisitions, this fact may seem appealing. However, it’s crucial not to solely rely on this aspect when making your decision.

Understanding the potential risks associated with purchasing a commercial property is paramount. Keep in mind that this is a substantial investment requiring significant financial commitment. For individuals exploring the prospect of acquiring a commercial property, the following is a fundamental guide to assist you in navigating the process.

Decoding Commercial Properties: A Diverse Landscape

Understanding commercial properties is crucial before delving into investment decisions. Unlike residential spaces designed for living, commercial properties serve business purposes, aiming to generate profit through rental income or capital gains. They encompass three primary types: retail, industrial and commercial, and hotels.

A Global Perspective: Foreign Investment in Commercial Property

The absence of ABSD for commercial property purchases makes them an attractive proposition, particularly for foreign investors. Contrary to residential property limitations for foreigners, commercial properties welcome international buyers with open arms. This equality in privileges between locals and foreigners underscores the international appeal of Singapore’s commercial real estate.

TYPES OF PROPERTY FOR WHICH A FOREIGN PERSON CAN PURCHASE

• Shophouse (for commercial zoned and use);
• Retail;
• Industrial;
• Office;
• Hotel (registered under the provisions of the Hotels Act)

Key Considerations: A Roadmap for Prospective Buyers

1. Choosing the Right Commercial Property Type

The diversity of commercial properties ranging from retail shops to industrial buildings and F&B space to office space, etc. demands careful consideration. For instance, heritage shophouses, although pricey, can promise high rental yields and substantial capital gains due to their limited availability and heritage conservation status.

Investing in a shophouse may make sense because they’re high in demand, and you can expect to get good rental yields. They also hold well in value, so you can also expect to get good capital gains should you sell them in the future.

But, shophouses aren’t cheap and they can be as expensive as a landed property. Depending on the type of shophouse, their usage may be restricted to their zones; some shophouses are for commercial use only, while others can be both residential and commercial.

Thus before deciding which commercial property to buy in Singapore, focus on one that has the potential to generate good rental income or capital appreciation.

2. Navigating Zoning Regulations

Zoning regulations, akin to residential properties, govern the use of commercial spaces. Adherence to guidelines or seeking approval for changes in intended use is crucial, ensuring a seamless transition in property function. In Singapore, commercial properties are also zoned according to their uses on the URA Master Plan.

3. Location and Location within Location

Location influences property type, tenure, and future developments. You will need to be aware of lease limitations in specific areas and potential government decisions on the locations which impacts future property values and business operations.

Also a location within location plays a big part especially for a retail space. For example, a shop facing the main road will have higher demand and thus value to a one that is tucked behind in a corner and away from the crowd.

4. ABSD Exemption: A Financial Edge

Unlike residential purchases, commercial property acquisitions do not incur ABSD, offering substantial savings up to 60% based on residence status. However, do check if the property is of full commercial status before committing to buy.

5. Navigating Seller’s Stamp Duty (SSD)

You don’t need to pay SSD for commercial properties but SSD obligations vary for residential and industrial properties. Understanding the SSD rates based on the holding period is crucial for effective financial planning. According to IRAS, the SSD amount you need to pay depends on the holding period (the number of years that you own the property before you sell it).

6. CPF Limitations

Unlike residential properties, CPF funds cannot be utilized for commercial property downpayments and mortgages. Cash transactions become imperative.

7. Financing (How Much Can You Borrow)

While commercial property loans allow borrowing up to 80% of the property’s value, higher initial cash outlays and stricter Loan-to-Value ratios for investment properties necessitate careful financial planning.

Depending on whether you’re buying for investment or for your own use, the LTV may be lower if you are buying for investment because banks consider commercial properties to have higher risks.

Do note interest rates for commercial properties are generally higher, the loan tenure for commercial loans is also shorter (capped at 30 years), compared to home loans (up to 35 years).

8. Unveiling Hidden Costs

Several additional costs come into play post-purchase, including property tax, Buyer’s Stamp Duty (BSD), GST charges, furniture expenses, and renovation costs.

9. Lease Dynamics

Unlike residential properties with leases of 99 years, 999 years or freehold tenures, some commercial or industrial properties often have shorter lease durations, impacting their resale value and future investment potential.

While freehold and 999 years leasehold commercial properties do exist, they’re rarely located in prime areas and usually command a premium.

10. Evaluating Rental Yields

While some commercial properties boast good rental yields, they come with increased maintenance costs. Balancing the potential returns with operational expenses is key to a successful investment.

If you are looking to buy a commercial or even a residential property in Singapore, we invite you to engage us as your property consultant. Contact us today to schedule a consultation and let us help you fulfill your real estate priorities .

Need an opinion on your property investment plans, the best buys available today or help marketing your properties?

Get a 1-time free Property Wealth Planning (PWP) consultation with Lushhome Property Wealth Planners.

A PWP consultation includes:

– An in-depth financial affordability assessment and timeline planning

– Has your property stagnated or dropped in price? What options do you have?

– Highly relevant investment insights on the current and long term property market

– A clear and customised investment road map to fulfil your dreams and life goals

– A curated list of best buys in today’s market with good growth potential, minimal risks and long term exit strategies

– Selecting units with the highest potential in a new launch project

– Advice on marketing and getting a buyer for your property fast

Follow us on Instagram or Facebook, or Whatsapp us now for any enquiries.

Disclaimer: The information is provided for general information only. Lushhomemedia.com makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.

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Industrial Property Market in 2022

The Singapore industrial property market witnessed significant trends in 2022, with the COVID-19 pandemic continuing to impact the economy. Despite the challenges, the industrial property market remained resilient due to the strong demand for industrial spaces from e-commerce, life science, and technology sectors.

The limited supply of prime logistics and warehouse spaces led to steady rent increases throughout the year. According to Savills Research, the rents for prime warehouse and logistics properties are expected to rise by 2% to 5% YoY in 2023, similar to 2022, while the conventional factories and outlying business parks may witness slower growth of up to 1.0% due to higher supply pipelines.

Additionally, the demand for warehouses could reduce in 2023 due to lower e-commerce demand, and the anticipated easing of supply chain disruptions in 2023 could lead to a slower stockpiling demand. Despite this, the industrial market’s long-term outlook remains promising, with the manufacturing sector expected to grow by 50% by 2030.

Long-Term Outlook for Singapore’s Industrial Property Market

Despite short-term challenges, the long-term outlook for Singapore’s industrial property market remains positive. According to the Singapore Economic Development Board (EDB), the manufacturing sector is expected to grow by 50% by 2030. This growth will be driven by the global trend of digitalization, automation, and cloud adoption, which will drive demand in the electronics and electronics-related sectors.

Moreover, Singapore has been positioning itself as a regional hub for high-value manufacturing activities, including research and development, innovation, and intellectual property creation. The government has been actively promoting the development of advanced manufacturing capabilities and technology adoption, which will enhance the country’s competitiveness in the global market.

The ongoing COVID-19 pandemic has accelerated the shift towards automation and digitalization, making Singapore an attractive destination for businesses looking to enhance their manufacturing capabilities. Additionally, the government’s efforts to create a conducive business environment and attract foreign investments will further boost the growth of Singapore’s industrial property market in the long run.

Forecasts for Industrial Property Market in 2023

Despite the challenging economic conditions, Singapore’s industrial property market is expected to remain strong in 2023. The limited supply of new properties, coupled with sustained demand from the e-commerce, life sciences, and technology sectors, is expected to drive rental growth for new economy assets, including prime logistics, warehouses, and city-fringe business parks.

According to Savills Research, rents for prime warehouse and logistics properties are projected to rise by 2% to 5% year-on-year (YoY) in 2023, similar to the growth rates observed in 2022. However, the tight supply of warehouse spaces is likely to continue beyond 2024, when no significant new supply is expected to come on stream. This could result in further upward pressure on warehouse rents, providing an excellent opportunity for investors looking to capitalize on the strong demand for industrial properties in Singapore.

On the other hand, conventional factories and outlying business parks are expected to experience slower growth of up to 1% in 2023 due to a higher supply pipeline. Additionally, the demand for warehouses may reduce in 2023 due to lower e-commerce demand, and the anticipated easing of supply chain disruptions may lead to a slower stockpiling demand.

Despite these challenges, the long-term manufacturing outlook for Singapore remains promising, with the manufacturing sector expected to grow by 50% by 2030. The global trend of digitalization, automation, and cloud adoption is expected to drive growth in the electronics and electronics-related sectors, maintaining strong growth prospects for the industrial market in 2023 and beyond.

In summary, the industrial property market in Singapore is expected to remain resilient in 2023, driven by the limited supply of properties and sustained demand from the new economy sectors. While there may be some challenges in the short term, the long-term outlook for Singapore’s industrial property market remains positive.

Need an opinion on your property investment plans, the best buys available today or help marketing your properties?

Get a 1-time free Property Wealth Planning (PWP) consultation with Lushhome Property Wealth Planners.

A PWP consultation includes:

– An in-depth financial affordability assessment and timeline planning

– Has your property stagnated or dropped in price? What options do you have?

– Highly relevant investment insights on the current and long term property market

– A clear and customised investment road map to fulfil your dreams and life goals

– A curated list of best buys in today’s market with good growth potential, minimal risks and long term exit strategies

– Selecting units with the highest potential in a new launch project

– Advice on marketing and getting a buyer for your property fast

Follow us on Instagram or Facebook, or Whatsapp us now for any enquiries.

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The report showed that rentals rose 0.4 per cent on-quarter during the January-to-March period, higher than the 0.2 per cent growth in the previous three months. On a year-on-year basis, rentals climbed by 4.9 per cent, slower than the average annual increase of 10.6 per cent over the past four years.

In terms of sale prices, the data showed a 3.8 per cent on-quarter gain in the first three months, following a 3.3 per cent decline in the previous quarter. However, on an annual basis, the 2.5 per cent increase in sale prices was still significantly lower than the average yearly growth of 20.2 per cent over the past four years.

The moderation came amid a drop in occupancy rates, which fell by 0.3 percentage points on-quarter and 1.4 percentage points on-year to 91.6 per cent in the first quarter.

“This decline in occupancy rates follows an increase in the supply of industrial land and space by the Government in recent years,” JTC said in the report.

Source : Today – 25 Apr 2014

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The move comes as concerns have been raised about the cost of commercial property in Singapore, with suggestions that some landlords are looking to increase prices by unrealistic levels.

JTC, which took over the collection and dissemination of industrial property data from the Urban Redevelopment Authority, yesterday launched a service on its website to allow the public to search for past rental and sale caveats for industrial sites — down to the street level.

The information will be updated on a quarterly basis and dates back to the past three years.

Mr Leong Hong Yew, director of Market Planning Division at JTC, said: “We want to make the market more transparent. Rather than just looking at the top-line number at the index level, we want to give more granularities in terms of geographic area, so (businesses) can see where are the areas they want to move to or whether there are cheaper alternatives. They can look at these and make informed decisions.”

There have been reports in recent months of tenants experiencing significant hikes in rents when renewing their leases. Many have called on the Government to take steps to ease these concerns.

Mr Victor Tay, chief operating officer of Singapore Business Federation, commended JTC’s effort, as businesses can now peg their bids to a price range based on the available historical information.

“In cases where sellers or landlords attempt to hike up prices too much, buyers and tenants can actually decline. An authoritative publication of industrial rent and purchase transactions is a commencement step towards a fair tenancy and fair transaction situation. Transparency can help businesses bargain to stay on or anchor themselves to longer term leases,” he said.

“When there’s a lack of transparency, companies tend to peg prices at the higher end, or even the highest pricing plus a certain premium, and because land is scarce, companies tend to outbid themselves.”

Property analyst Colin Tan of Suntec Real Estate Consultants agreed, adding that the relatively opaque situation in the past often put tenants and buyers at a disadvantage at the negotiating table.

“In the private sector especially, tenants are often at a loss when it comes to the starting level of negotiation. It’s usually up to the landlords to do it because they may have more experience. So, having such data is a step in the right direction because it helps to even out the playing field,” said Mr Tan.

“Whether or not this will lead to more affordable prices going forward is also dependent on the demand and supply situation. In the industrial space, there are so many types of properties and different types of tenure. Negotiation is just one aspect of the whole picture,” he said.

The Government has been ramping up supply of industrial space over the past few years, slowing down a rise in sale prices and rentals of these properties.

An average of about 2.1 million sqm of space is expected to be made available every year over the next three years — an amount that is significantly higher than the average annual supply and demand in the past three years.

“In the next few years, we’re seeing a whole range of industrial space coming up, including multiple-user factories, single-user factories, land-based, high-rise or ramped-up factories, so the market is well taken care of,” said JTC’s Mr Leong. “Looking at the supply coming up, we would expect prices and rentals to continue to moderate, and this should be good news for our industrialists operating out there.”

Source : Today – 25 Apr 2014

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Outlining its plans for the future, JTC says the 16 projects it is working on are expected to add 800,000 square metres of multi-user space by 2017.

JTC also expects industrial rents to continue to moderate in the coming years.

JTC is the lead industrial infrastructure developer in Singapore. It owns 81 percent of the 9,100 hectares of industrial land in Singapore as at the fourth quarter of 2013.

Over the years, JTC Corporation has developed specialised land for key business clusters, including the Seletar Aerospace Park, as well as providing space with shared facilities to help companies become more efficient.

To further intensify land use in the future, JTC is looking at developing integrated multi-user factories for the oil and gas sector, with provision for housing more than 1,000 foreign workers.

“We want to provide a facility where we have land-based factories, where if you need higher floor loading for heavy manufacturing, you can put it on the ground floor,” said Png Cheong Boon, CEO of JTC.

“We will have a warehouse; we can have light manufacturing space above it. We can have office space above that, as well as foreign workers dormitory too. So that way, a company that requires different types of space can locate there, including housing for their foreign workers.”

Another initiative that JTC is studying is “decking” over major roads and highways.

One example cited was the Ayer Rajah Expressway, which currently separates NUS and the Science Park from one-north.

“We want to build an integrated connected community,” said Mr Png.

“If there is a way for us to deck over AYE, and not just an overhead bridge but to build buildings across it, then it provides a contiguous space for people who are working or studying at NUS or Science Park to flow over to one-north and vice versa, and hopefully through this aspect we can build a more connected, integrated work-life and play community.”

JTC is presently in discussions with industry partners and trade associations on the development of innovative space and land.

JTC adds that its small footprint factories have seen good demand from SMEs, and that it is working on providing more of such spaces which could be ready by 2016 to 2017.

As a key player in the sector, JTC says industrial property prices have moderated since the introduction of seller’s stamp duty and loan curbs (TDSR) last year.

The prices rose by 3.5 per cent in 2013, compared to 9.7 per cent in the previous year. During the fourth quarter of 2013, JTC says the prices fell 1.4 per cent when compared against the third quarter of 2013.

JTC says about two million square metres of space will be added annually from 2014 to 2016, which is actually double the annual demand. It is hoped that this supply will help to moderate industrial rents going forward.

Mr Png said: “We think that the softening will continue in the first few quarters of this year, but a lot also depends on how well the economy is doing… Generally speaking, we think the rental prices will continue to be moderated in view of large supply coming on stream.”

JTC says currently the private sector owns about 85 per cent of multiple-user industrial space in Singapore, which are commonly used by SMEs.

This is up from 69 per cent in 2008 before JTC divested some of its industrial space.

Source : Channel NewsAsia – 1 Apr 2014

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The four-storey industrial building at Upper Paya Lebar Road has an area of approximately 27,161 square feet with 17 existing units.

Marketing agent CBRE said the building has a reserve price of S$37 million.

This works out to S$545 per square foot (psf) per plot ratio and a breakeven cost of about S$792 psf.

No development charge is expected to be payable.

CBRE added that the building gives a single user the opportunity to develop a standalone freehold industrial building with naming rights.

Alternatively, it can be developed into a strata title industrial building to cater to Small & Medium Enterprises who wish to own their business premises.

The tender closes on July 5, 2013.

Source : Channel NewsAsia – 29 May 2013

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Data from Knight Frank shows that sales volume of strata-titled factory space in the first quarter this year is 26.5 per cent lower than the same period last year.

Knight Frank’s latest report analysed caveats lodged up till March 15.

Despite the sharp drop in demand from the fourth quarter of 2012, prices of new factory spaces fell only moderately. Prices for 30-year leasehold factory units fell by 4.2 per cent and those with 99-year leasehold declined 1.6 per cent. Prices fell four per cent for a 60-year lease hold unit and 3.5 per cent for a freehold unit.

This is despite the government imposing Sellers’ Stamp Duty of 15 per cent on properties sold within the first year of purchase.

Alice Tan, senior manager at Knight Frank, said: “We see that price trends generally would exhibit a laggard effect to regulations and measures. So once the prices start take effect due to cooling measures, which would happen over the next two quarters, hopefully the government will not launch any more cooling measures.”

Other market watchers like Savills Singapore are forecasting industrial property prices — which is made up of 70 per cent factory space and 30 per cent warehouse — to decline by 10 to 15 per cent this year.

According to Knight Frank, rentals of factory space have increased by five per cent in Q1 2013 from Q4 2012 to S$2.13 per square foot islandwide.

Knight Frank noted that the newer strata-titled factory spaces have commanded higher rentals, but with 24 million square feet of new supply coming up in the remaining 2013, rental increase is likely to be capped.

While more tenants may be interested in newer spaces, those with tighter rental budgets may go for older buildings — should the rental difference between the newer and older space widen further — where rents have slipped by 10 to 15 per cent, depending on location.

Dominic Peters, who is the industrial real estate director for Savills, said: “In locations where there are a great demand that outbids supply — Woodlands, Kaki Bukit, Ubi — there will be a drop in rentals as expected. In locations like Lavendar, Henderson areas, where it is out of CBD, I think rentals will still hold or maybe ease a bit in the next quarter.”

According to the URA Price Index, industrial property rentals rose 3.9 per cent in the fourth quarter of 2012 from the preceding quarter, outstripping the 1.2 per cent quarter-on-quarter rise in July through September.

URA is expected to release final first quarter property data on April 26.

Source : Channel NewsAsia – 8 Apr 2013

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The asset consists a large single-storey factory – comprising warehouses, production and office areas.

Exclusive agent for the deal Jones Lang LaSalle said the site has a built up area of about 62,500 square feet.

It is located on a leasehold site of 109,164 square feet with a remaining term of 25 years.

Meanwhile, the site has a “Business 2” zoning and a plot ratio of 2.5

The development is located near Boon Lay and Joo Koon MRT stations.

Local Director of Investments at Jones Lang LaSalle, Nicholas Ng, said it expects strong response for the site, thanks to “increasing demand from industrialists and limited supply of large industrial land for sale in the Enterprise Road area”.

He added that the capacity of the asset to be refurbished and potentially boost the gross floor area to maximise the plot ratio will make it attractive to small and medium enterprises or corporates who are seeking to “expand their business or their headquarters in an area where there is excellent accessibility and infrastructure, with good access to the workforce from the surrounding housing estates”.

The tender will close at 3pm on 30 April 2013.

Source : Channel NewsAsia – 19 Mar 2013

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Some analysts say prices could climb by 30 per cent for the entire year, one of the highest in recent years. They attribute the increase to buoyant demand for strata-titled industrial premises.

Low interest rates, high liquidity and cooling measures in the residential property segment have further fuelled demand.

The Singapore government has set aside 24.84 hectares of industrial land for the first half of 2013. They will also require developers to build a minimum number of large factory units for selected plots under the Industrial Government Land Sales Programme.

Some market watchers however say the upward price trend is likely to continue in 2013.

“Prices are at an all-time high now. Compared to the 1997 peak, we are about 14.9 per cent higher, and compared to the most recent peak in 2008, we are now at more than 59.3 per cent higher,” said Chia Siew Chuin, director of research and advisory at Colliers International.

“At the same time, buyers are also more resistant now in terms of pricing especially within such uncertain economic conditions,” added Ms Chia.

The government cut lease terms for industrial sites from 60 to 30 years earlier this year in a bid to make industrial land more affordable.

However some analysts say the move has had a limited impact.

“We can expect more policy measures affecting the industrial market next year. If that transpires, we will see a flattening out in terms of industrial land price demand… (However) we will still be looking at an uptick (of) not more than 10 per cent,” said Donald Han, a special advisor at HSR.

Analysts also expect rentals for industrial properties to fall in the coming year, in view of some 8 million square feet of business and industrial parks that is due to be completed in the next 16 months.

“The substantial supply that is coming in both high tech space as well as conventional industrial spaces will likely help keep rental growth in check going forward,” said Chua Yang Liang, head of research at Jones Lang LaSalle.

“Capital value is a very different ball game now; it may see some stronger growth compared to rental,” added Mr Chua.

Market watchers have also said that they expect rentals in the office property segment to dip by 5 per cent in 2013.

Analysts however say the decline will be mitigated by rising demand for office space in the central business district, especially from companies outside the financial services sector. These include law firms as well as a variety of consultancy firms.

However, with the uncertain economic outlook next year, analysts say a supply overhang could be a rising concern.

They expect some 4 million square feet of new office space to be available in the next two years.

Source : Channel NewsAsia – 26 Dec 2012

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This is according to analysts ahead of flash estimates to be released by the URA on Monday.

While price increases are set to moderate, there are concerns that the uptrend in industrial property prices may spur policy changes to cool the market.

Launched last year, the light industrial development M38 near Bishan is now three quarters sold.

But its sales transactions have yet to fully add weight to the URA price index in industrial property prices.

Savills Singapore’s head of research Alan Cheong, said: “Increasingly last year, the URA price index did not quite capture a lot of these caveats logged for new development projects. But now, they are beginning to populate the basket. And come the fourth quarter, much of this populating of the basket for the index would have been filled up by these new age industrial buildings.”

Savills Singapore estimates that the URA price index for industrial property in the third quarter will rise by 8.9 per cent from the second quarter, after increasing by 8.3 per cent over the first quarter this year.

The rate of increase is then likely to cool off.

In the fourth quarter this year, industrial property prices should increase by 5.1 per cent compared to the third quarter this year.

It is expected to increase by 2.5 per cent in the first quarter next year.

Some analysts are concerned about a potential bubble forming from such high rates of price increase.

GSK Global’s chief executive officer Eric Tan said: “Locally we are facing some economic slowdown and internationally, the US is easing their liquidity. And that will flow into the region and increase the asset prices. It may lead to another bubble in our industrial property.”

SLP International’s head of research Nicholas Mak, said: “I think the level of speculation is relatively higher than previous property boom of 2006 and 2007. One of the reasons is that there are now a lot more single users, strata-titled units trading in the market.”

With such high prices, analysts said industrial property developers are afraid of policy risks but are confident of demand especially from business owners who want to contain rental costs that have gone up by some 30 per cent to 40 per cent in the last few years.

Analysts said retail investors who want to protect their capital from inflation and low interest rates will also continue to drive demand.

Source : Channel NewsAsia – 27 Sep 2012

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