If you have decided to embark on a journey as a property investor, a key decision you have to make is what type of property you want to invest in. Here’s a brief overview of the three main types of property investment in Singapore: residential, commercial and industrial.
Residential property investment
Residential properties in Singapore can be divided into public or private housing. Most beginner property investors tend to purchase a private property as a second property for investment. Private housing can comprise non-landed housing such as apartments or condominiums and landed housing such as bungalows, semi-detached, terrace houses or strata-landed housing (also known as cluster houses). Private housing can be further divided into leasehold or freehold properties. If you already own an existing residential property (whether it’s an HDB flat or a private property) and wish to purchase another private property for investment, there are several factors to consider. For example, you will be levied with the additional buyer’s stamp duty (ABSD) which is a tax charged on second and subsequent residential property purchases. There are also other financial considerations such as the total debt servicing ratio (TDSR) and loan-to-value (LTV) ratio.
Commercial property investment
Commercial property includes office buildings, shopping malls, banks, market and food centres, restaurants and some developments which contain a mix of commercial uses. A key difference between residential and commercial property investment is that there is no ABSD levied on commercial property. Rental yields on commercial property are usually higher than on residential property. Unlike residential property investment, CPF does not come into play when it comes to financing the purchase of commercial property. However, GST is payable on the purchase. Commercial landlords have to play an active role in upgrading and maintaining the facilities to keep tenants happy. They also have to consider various ways to optimise rental yield. The performance of the commercial property sector is also linked to the type of industry the tenants operate in. For example, the COVID-19 pandemic has seen more people working from home and lower retail footfall which could potentially impact the demand for office and retail spaces.
Industrial property investment
Industrial properties can be divided into light industrial properties (B1 industrial properties) and heavy industrial properties (B2 industrial properties). They are mainly used for manufacturing, warehousing, storage and workshops. 40% of the space can be used for ancillary purposes such as for showrooms or ancillary office space. Heavy manufacturing activities would come under the B2 category. There is potential for a higher rental yield on industrial property investments. Like commercial properties, there is no ABSD levied, GST is applicable and CPF cannot be used to purchase industrial property. However, seller’s stamp duty is applicable for properties bought after 2013. The tenure of industrial properties tends to be shorter, usually between 30 to 60 years.
This article gives a very brief introduction to the different types of real estate property in Singapore. Property investing is a serious commitment. The type of property you decide to invest in will depend on other factors such as your investing objectives, appetite for risk and financing options. It’s wise to conduct thorough research and weigh your options before you buy your first investment property.