For decades, the standard play for a property investor in Singapore has been the same: buy a residential condo, wait for the price to appreciate, and collect a modest rental income along the way.
But what if there was a better way? An asset class that offers higher yields, fewer headaches, and significant tax advantages?
What your property agent might not tell you is that more savvy investors are looking beyond the condo and into the commercial property market. Here’s why.
7 Compelling Reasons to Consider Commercial Properties
- Less Landlord Work, Lower Costs Up Front: Residential landlords usually have to spend thousands on renovations, furnishings, and appliances just to get a tenant. With commercial properties, tenants typically take a bare shell and fit it out themselves, saving you a massive headache and upfront expense.
- Tenants Stay Put — Switching Is Costly: Commercial tenants face huge sunk costs from their fit-outs, specialized equipment, and customer goodwill. This makes them far less likely to haggle over rent or switch to a new location. The result? Stronger tenant stickiness, higher occupancy rates, and fewer vacancy headaches for you.
- Much Lower Entry Price: You don’t need condo-sized capital to start. While a new private condo can easily cost over $1.5 million, a small commercial or industrial unit in a fringe area like Ubi or Paya Lebar can be a fraction of that, with entry prices sometimes as low as a few hundred thousand dollars. This makes it a much more accessible entry point for new investors.
- Easier Diversification, Lower Concentration Risk: With smaller ticket sizes, you can buy multiple units rather than putting all your capital into one big asset. For example, spreading $2 million over four smaller properties reduces your vacancy risk significantly compared to putting it all into a single, high-value condo.
- No ABSD — Keep More of Your Returns: Commercial purchases are not subject to Additional Buyer’s Stamp Duty (ABSD), which is a huge deal. Your acquisition costs are immediately lower, meaning more of your capital is working for you from day one, and your long-term return on investment (ROI) faces far less erosion.
- No Seller’s Stamp Duty (SSD): Want to take gains in the short-to-medium term? Commercial deals aren’t hit by SSD. This makes short-term exit strategies and capital gains more viable. For example, some investors have generated strong returns from past flips of mixed-use assets.
- Demand Outstrips Supply in Pockets: While you hear about oversupply in some retail segments, limited supply in key commercial and industrial areas means faster leasing and less marketing required. This translates to predictable cash flow for landlords.
The Other Side of the Coin: The Risks of Commercial Property
Of course, no investment is perfect. While commercial property has some clear advantages, it also comes with unique risks you need to understand.
- No CPF Usage: Unlike residential properties, you cannot use your CPF Ordinary Account to finance a commercial property purchase. It’s a cash and bank loan-only game.
- Higher Interest Rates: Commercial property loans typically have higher interest rates than residential loans, as banks see them as carrying a different risk profile.
- Economic Cyclicality: Commercial properties, particularly office and retail spaces, can be more sensitive to economic downturns. If businesses struggle, so does your rental income.
- No Owner-Occupier Tax Exemptions: Unlike residential properties (for your own stay), you don’t get property tax exemptions on commercial properties.
- Higher Entry Point: While some commercial properties are affordable, the most desirable ones (e.g., prime office space) come with a higher price tag than an average residential condo.
Final Word
The bottom line is that commercial properties can offer higher yields, less landlord effort, stronger tenant stickiness, and tax advantages that preserve your returns.
But it’s a different ballgame. You have to be prepared to invest with cash and a deeper understanding of market fundamentals. If you’re ready to explore this path but don’t know where to start, the first step is always to get professional advice.
