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Investing in commercial real estate in Singapore

Property investment can be highly rewarding in the long-term. Many Singaporeans rode the property boom in the years from 2008 to 2013 to build a substantial level of wealth for themselves. But the last three years have been unkind to Singapore’s property market.

The downturn in the real estate market is widespread with residential and commercial properties both registering significant declines.

But it is certain that at some point in time, prices will start rising, rewarding those investors who have had the foresight to stay in the market.

In fact, the current depressed state of the property market provides an attractive buying opportunity.


Commercial properties can hold great potential

Source: Pixabay

Singapore’s position as a regional financial hub and a centre for the manufacture of high technology products guarantees that there will always be a robust demand for office properties and industrial units. Investors can cash in on this by buying commercial property and leasing it out to earn a steady income.

There are a large number of projects under construction and investors have a wide choice of properties to choose from.

Resale commercial properties are also a good option. It is easier to estimate the rent that you will earn from a resale property as you have past data to rely upon.


Population increase will lead to rising demand for real estate

Source: Pixabay

Singapore’s population is projected to reach 6.5 million to 6.9 million by 2030 from the current level of 5.6 million. This increase will create a demand for housing as well as for commercial properties.

Investors can take advantage of this opportunity by buying commercial real estate in new developments and areas that are expected to see a rapid growth in population.

An area with many new developments in the vicinity is sure to see a rise in demand for retail outlets and other establishments catering to the local population.

While an investment in this type of commercial property can provide greater than average returns, it can also take a longer time period to turn profitable.

Investors should have the means to service their loans even if their properties remain vacant for an extended period of time.


Investing in retail space

Colliers International Singapore, a company providing real estate-related services, recently released its analysis of the retail space sector for Q3 2016. The firm has noted that the year saw the retail sector in Singapore burdened with oversupply, higher vacancy rates, and falling rents.

The real estate consultancy has pointed out that rents in the Orchard Road area as well as in regional centres are expected to register a decline of between 2% and 3% in 2016.

Similarly, capital values will also drop. Prices of Orchard Road retail space will decrease by 2%, while regional centres may remain stable or fall marginally by 0.5%.


Strata-titled retail properties

Source: Pixabay

Buyers should bear in mind that ownership of strata-titled retail properties presents several problems. Individual owners often find it difficult to agree on various issues.

Consequently, many malls in this category present customers with shops selling competing products. Maintenance services can be patchy and there is often a shortage of funds for joint promotional efforts.

If you intend investing in strata-titled retail space, it is essential that you first get a thorough understanding of the property. A hasty purchase could leave you in a position where you earn a lower rent and find it difficult to service your loan repayment commitment.


Prices of commercial properties and rentals may continue to fall

The decline in capital values is not restricted to retail space. URA data confirm that prices for office space are falling as well. In the third quarter of 2016, the price index for office space registered a decrease of 0.4%. The rental index sank from 167.6 to 165.7, a reduction of 1.1%.

The downward trend looks set to continue as there is plenty of office space in the pipeline. In 2017 alone a further 376,000 square metres is expected to be added to the overall supply.

Source: URA


Is investing in commercial property a good idea?

Commercial real estate offers several advantages over residential property. Investors do not need to bear Additional Buyer’s Stamp Duty (ABSD), a cost that can add a significant amount to the overall price of a residential property.

Another edge that commercial property has is that if it located in an area that is developing rapidly, you can expect its value to rise very quickly. Of course, if the locality does not attract as much traffic as anticipated you could even see a decline in your property’s market price.

But a commercial property purchase made after carrying out careful market research should yield positive long-term returns. If the overall real estate market starts to climb, the value of your investment may improve even sooner than you expect.

(By Ravinder Kapur)

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- Should you be investing in office REITs in Singapore?
- Getting to know more about industrial REITs in Singapore
- Factors to consider before purchasing commercial property in Singapore

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