Financial Implications of Sale/Purchase of Industrial Commercial Properties

Investors who are looking for alternatives to residential properties may wish to purchase commercial or industrial properties. Before you proceed, do note that there will be a much smaller pool of buyers for commercial properties as these are usually business owners or other investors.

Residential and commercial/commercial are subject to different regulations. Below are a few pointers to note that will affect the amount of cash you need, and taxes you may need to pay.

No CPF Usage

The CPF funds are not allowed to fund the purchase of commercial/industrial properties as they are not considered essential items unlike a home. You will need to use cash for the downpayment.

No Additional Buyer's Stamp Duty (ABSD)

Additional Buyer’s Stamp Duty (ABSD) does not apply to commercial and industrial properties. However, you will still be subject to Buyer’s Stamp Duty (BSD).

For the calculation of the BSD, click HERE.

Seller's Stamp Duty (SSD)

No taxes are imposed for selling your commercial property.

However, for industrial properties, there will be Sellers’s Stamp Duty (SSD). The rate is as follows:
First year – 15%
Second year – 10%
Third year – 5%

Goods & Services Tax (GST)

The 7% Goods and Services Tax (GST) is levied on the purchase of commercial/industrial properties. Individuals buying a commercial property will have to pay the GST by cash.

However, if a buyer purchases a commercial/industrial property through his company, he may apply for a GST rebate, subject to guidelines set by the Inland Revenue Authority of Singapore (IRAS).

Property Tax

All commercial and industrial properties are subject to a 10% property tax based on the Annual Value of the property.

There is no difference between owner-occupied and rental units.

Mortgage Loan

Depending on the bank, the loan of the property value can be up to 80%. Some banks only finance certain types of property eg retail or office spaces.

The maximum loan tenure can be up to 30 years and depends on the remaining lease. The loan tenure will shorten with older properties.

The Loan-to-Value for commercial properties typically ranges from 60% – 75%, depending on whether the property is for owner-occupancy or investment. Investment properties will generally be subject to stricter criteria by banks.

Using Company Name vs Personal Name

Individuals are subject to the Total Debt Servicing Ratio (TDSR) when buying a commercial/industrial property under their personal names. In brief, this means that the total of their debts (including mortgage, car loans, credit cards outstanding bill) must not exceed 60% of their monthly income.

Company directors are also subject to the TDSR when buying under the company name. This applies when the company is an investment holding company or a loss-making active company, and does not have sufficient revenue to service the repayments.

To purchase a commercial/industrial property without being subject to TDSR, the company has to be an established business with sound fundamentals and positive financials. In such instances, the TDSR will be waived. Nevertheless, the bank will require personal guarantors for the company’s loan and the onus falls on the directors. Undertaking the guarantee of a loan affects one’s TDSR loading and may affect future purchases by the directors for other property purchases.

To buy a commercial or Industrial property under company name where the company is well established with an existing operating business with strong financials, TDSR may be waived on the individual. However, a Director is usually required to become personal guarantors of the loan the company undertakes. Hence this may affect the director’s other purchases, such as for buying a residential property, due to the loading from the TDSR for guaranteeing a loan.