In Singapore, more than 50 financial institutions and banks provide loans for commercial and business property. Using a commercial property loan Singapore offers with good deals, your company can finance the acquisition of commercial or industrial real estate.
Owning the asset on which one conducts business is beneficial to a company, especially for SMEs planning expansion soon. Businesses that invest in their properties may benefit in the long run, even though this money implies high upfront CAPEX costs.
Increased Cash Flow and Liquidity
Businesses may benefit from owning property because it can be used as collateral for equity loans, which enables them to get more working capital financing if there is a big enough loan-to-value cushion.
One of the least expensive ways to fund businesses in Singapore is, to use real estate as collateral for business loans. Compared to unsecured loans, loans supported by assets have lower interest rates. You can use this extra cash flow for other business needs, including hiring more people, replacing old infrastructure, or investing in innovative new technologies.
Increased Regulation of Property Use
Though a rented space increases a company’s flexibility and lowers CAPEX, businesses may have to comply with strict rules that their property owners have set when using the space for business purposes. Renovations, switching utility providers, and limitations on inventory storage could all result in usage caps.
You have more freedom to furnish and alter your workspace to suit your business needs if you own the real estate.
Businesses with their own business or commercial assets can save on taxes. Tax deductions are available for mortgage interest charged, and depreciation claims may be available for property depreciation.
In contrast to residential properties, where stamp duty is subject to a maximum of 4%, purchasers of non-residential properties are only subject to a maximum of 3%. The acquisition of a subsequent or additional non-residential property is not subject to a higher buyer’s stamp duty.
Keep in mind that if the vendor is a GST-registered entity, industrial and commercial assets have the option to sell with GST. If you’re a business, you can get the GST back once the transaction is finished.
What Is the Maximum Loan Amount for Commercial Real Estate in Singapore?
The higher loan-to-value range for most banking institutions is between 80% and 90% of the sales price or valuation of the real estate, whichever is lower. This is dependent on the credit evaluation of the relevant banks.
The Monetary Authority of Singapore has established an internationally recognised set of total debt servicing ratios and loan-to-value regulations that all FIs (financial institutions) must adhere to when underwriting residential housing loans.
In contrast to residential property loans, commercial and industrial property loan guidelines evaluate applicant companies’ credit more subjectively. Here, lender adherence to a particular subset of industry underwriting standards is not mandatory by MAS. When evaluating business loans for real estate, banks may use individual credit underwriting.
Your overall income, profit margin, gearing ratios, the kind of asset being financed, the length of time the business has been in operation, and the strength of your cash flow are all factors that financial institutions take into account when deciding your maximum loan limit.
If a SORA*-pegged loan package better suits your company’s needs, some banks, like DBS, will provide it. Businesses may also submit a financial application with their primary bank and an application for an unsecured loan from a different bank at the same time to finance up to 100% of the purchase price of the property.
In essence, this eliminates the need for a deposit from the company on the purchase. Banking institutions provide a higher LTV for assets meant for a business’s use as opposed to investments (i.e., to rent out).
Interest Rate On Loans for Commercial Property
The annual interest rate on commercial real estate loans ranges from 4% to 5%. Banks typically offer floating rates, also referred to as variable rates, in their rate packages. The benchmark rate or reference point rate plus the bank’s profitability or spread will typically make up the rates quoted. This benchmark rate is openly available and transparent. Banks like DBS, however, provide loan programs like:
- The Monetary Authority of Singapore published a fixed rate for the first two years, which is a three-month compounded SORA rate.
- Fixed payments for the first two years; no repapering of loans when SORA becomes the norm in the future.
This is an example of a typical variable rate offer:
1st year: 3-month SORA plus 2%
2nd year: 3-month SORA plus 3%
In this instance, the benchmark rate is the three-month SORA, and the lender’s percentage would be 2% for the first year. In the first year of the loan, your interest paid would be 5% p.a. if you assumed that the 3-month SORA at the time was 3%.
Additionally, there are fixed-rate packages, which guarantee interest rates for the duration of the lock-in time frame of 2 to 3 years generally. The majority of banks except for DBS presently do not offer fixed price packages due to the US Fed’s rapid increase in rates.
Loan Duration and Repayment Schedule
For loans on commercial real estate, the maximum loan term is 25 to 30 years. However, the length of the loan period provided by the banks will depend on how much of the commercial or industrial property’s lease is still in effect.
Most financial firms will demand that the leasehold has at least five to ten years left after the loan term has ended. The banks can only stretch a loan repayment schedule of ten to fifteen years if the property’s remaining lease at the point of sale is 20 years.
When deciding how to finance their properties, commercial and industrial property owners should consider remaining leasehold. Due to the short remaining leasehold tenure, a relatively short repayment period will mean higher month- monthly loan servicing payments.
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To qualify for a commercial real estate loan for a Singaporean SME, your company must have operated in Singapore for at least a year. Additionally, your business’s overall income must not exceed 20 million Singapore dollars, and Singaporeans or permanent residents must own 30% of the shares.
A commercial property loan in Singapore is easy to apply for and requires less paperwork. You should first submit your company information using the relevant bank’s app. Your bank can process your financial support as it has access to those details through the portal. Once approved, the loan can be purchased to buy shares in commercial real estate properties, which can potentially provide a steady stream of income through rental payments and appreciation in value. However, it is important to carefully research and analyze the market before investing in any particular property.