It’s hard to find information on commercial property loans online. Although they are similar to residential property loans, there are some differences, including the types of loans available.
Whether you’re looking to purchase a space for your business or starting out with real estate investment, you’ve reached the right place. Let’s break it down.
What is a Commercial Property Loan?
For a start, it’s a loan you take out to finance commercial property. These loans are sometimes referred to as business property loans.
Such a loan could be used for a variety of commercial types:
- Office Units
- Shop Houses
- Coffee Shops
- Retail Spaces
- Units in a Business Park
- Mixed Developments
Who needs a commercial property loan in Singapore?
The primary reason for purchasing a commercial property is very different from a residential property. Residential purchases are based on personal preferences and lifestyle. Commercial ones, well, are mainly used as business property.
Therefore, it is crucial to thoroughly research the property market for a property type with a location that would best suit your business needs if you intend to buy as an owner-occupier, and your investment goals, if it’s for investment.
As an Investor
Investors buy real estate in order to monetise. They might use it for rental income and/or for capital gains when they resell it in the future. These buyers do not occupy the property themselves. Instead, they rent it out to other individuals or businesses.
As an Owner/Occupier
These buyers purchase the property for themselves or their businesses. For instance, a business owner buying commercial property to be used as office space for their enterprise for operations.
Financing Commercial Properties Under Personal Name vs Business Name
Properties Under Personal Name
As you’re buying under your own name, the loan would come under the TDSR (total debt servicing ratio) framework where the loan amount granted is dependant on your capacity to borrow in Singapore. For those with high income, this is usually not an issue.
Properties Under Business Name
One major benefit of financing via a company is that it allows you to borrow beyond your personal loan capacity as TDSR is not taken into consideration. However, the interest rate might be slightly higher, although not always the case, depending on the general interest rate environment.
*Note that unlike residential properties, no Additional Buyer’s Stamp Duty (ABSD) is charged on a business property. CPF cannot be used to finance either.
Commercial property loan interest rate in Singapore
Commercial property loan interest rates are not as openly published in Singapore and can vary greatly, although if you scout around, you can still find competitive rates to ease your working capital requirements.
The reason why attractive interest rates are not plastered all over websites is that each deal is usually customised according to the details of the property valuation, period of stay etc.
A loan package you would choose depends on several interest rate factors; lock in period, rate fluctuations from floating rates and repayment and prepayment options.
Fixed Interest Rate Loans
This is the most straightforward.
Pros: You pay fixed instalments. This type of loan protects you from rate fluctuations and you can have cashflow certainty.
Cons: If the prevailing interest rate is lower than your agreed rate, you lose out on those interest savings.
Floating Interest Rate Loans
These are variable interest rates that move with the market. Such property loan financing options are pegged to either Fixed Deposit (FD) rate or Singapore Overnight Rate Average (SORA).
Pros: Interest rates are lower than that of fixed rates
Cons: There is a chance that the interest rate could increase. When this happens, the borrower has to make payments at the new rate
What kind of loans are available for commercial property?
There are many types of loan packages available with attractive interest rates. A bank or financial institution can create multiple variations but they all boil down to the purpose of the loan, as follows:
New purchase loans, as the name suggests, are for new property purchases.
Refinancing is when you switch your existing loan to a new one with another bank or lending institution.
Repricing is when you get a new loan package with your existing financial institution.
A Bridging loan is a temporary loan before permanent financing is put in place. They help pay for the down payment of your new property purchase while waiting for the sale proceeds from your existing property.
How To Apply for a Commercial Property Loan in Singapore
Applicants usually have to request a quote from the bank or lending institution because of the complexity of the loan, the value of the business property and a basic credit assessment to reduce their liability.
Based on your specific situation, you will be advised on what documents to submit in your application and if the information provided is sufficient.
For more information on eligibility, fees and what terms and conditions apply, contact us at 6835 7666. Our friendly loan advisor will be happy to provide more details.