Can Buying Commercial Property in Singapore Really Beat Inflation?

Inflation is a worrying phenomenon in Singapore. From electricity tariffs rising by 8% in Q3 of 2022 compared to the previous quarter to food and oil and gas prices hiking up, there is a sense that Singapore’s central bank will continue to struggle with persistent inflation in the months to come. As it stands, inflation in Q2 of 2022 rose to 3.8%, while in July 2022, Singapore saw a 14-year high of 4.8% core inflation.

Content

• What is the outlook on inflation in Singapore?
• Can buying commercial property in Singapore really help you beat inflation?
• What types of commercial property should you buy to make sure you beat inflation?
• Why investing in shophouses is a good prospect? 
• Where to start?

As inflation levels continue to trend upwards, many people are looking for ways to beat inflation. In investment-savvy circles, a commonly recognised way to do this is by buying commercial property. 

Buying commercial property in Singapore is typically recommended as it tends to go up in value at a rate higher than inflation. So, it’s an excellent way to protect your buying power. But with heightening inflation looming over the city-state, can you really beat inflation by buying commercial property? 

What is the outlook on inflation in Singapore?

Inflation in Singapore has been on the rise in recent years owing to a potent mix of unforeseen events such as the Covid-19 pandemic, supply chain disruptions, rising costs in prices of goods and services, and the conflict in Ukraine. 

Because of these factors, the outlook for inflation in Singapore is expected to remain high in the next few years. 81% of Singaporeans expect the inflation rise to continue into 2023 and beyond. This means that consumers expect their buying power to continue eroding in the coming year. 

Despite the wary expectations relating to faltering buying power–or perhaps because of it–Singaporeans expect to continue investing for higher returns. In a survey conducted in February 2022, 79% of Singaporean respondents look to invest amid worries over rising inflation and volatile markets. 

Can buying commercial property in Singapore really help you beat inflation?

The good news!

Commercial real estate has been historically one of the better inflation hedges. There’s a positive correlation between rents and capital values, which makes it difficult for any asset class to beat its high levels of earning expectations. 

Meaning commercial property rental is generally higher than residential properties. With inflation rising, the rental will hike up even more. Thus, it will increase the return earnings for the commercial property owner.

In addition, if you invest in buying commercial property now, it will work as a perfect hedge. Inflation is causing commodity prices to rise. As such, construction costs are also rising. All of these will contribute to property prices inflating as well. As such, in future, you will see the price of your commercial property rise in tandem with inflation, thus saving your money value from eroding.

So, yes, buying commercial property in Singapore can help you beat inflation. However, a major caveat is that while there are several commercial property types, not all would be a good hedge against inflation. 

The risks

Despite the benefits, risks are evident in property investment in Singapore. In buying commercial property, you need to be aware of the possibility of a market crash. If the property market crashes, then the value of your property will decrease, and you may even end up losing money. 

Another concern is the possibility of tenants not paying their rent. If this happens, you will have to bear the costs of repairing or maintaining the property.

What types of commercial property should you buy to make sure you beat inflation?

Zeroing in on the best performing types, the commercial real estate price indices have shown that the industrial and shophouse sectors can provide positive returns over a long-term horizon.

Industrial space in Singapore

Industrial space is a commercial property that has seen reliable positive growth. This is due to several factors, such as the growing demand for space from e-commerce businesses, third-party logistics players, and the biomedical sector. 

Shophouse in Singapore

The sector that has been seeing the most success is shophouses. We have written extensively about shophouses in Singapore. They tend to appreciate in value at a rate higher than inflation. So, they are a good investment for those looking to beat inflation.

In fact, shophouses have performed so well that they far outstrip all other commercial spaces over the long term. Factoring in inflation, shophouses have notched a 9% CAGR over the last 15 years. That’s better than the S&P 500 CAGR of 8.72% over the same period! 

Granted, the base is likely smaller than the other sectors, but these only mean shophouses are on a roll. 

Why investing in shophouses is a good prospect? 

They have an inspired, unique look. They have flexible usage. Plus, there are only about 6,500 shophouses in Singapore. With no upcoming state tender for commercial sites in the Central Business District (CBD), it’s unlikely that there will be any new shophouses. Value-building scarcity is built into this asset type! 

Of course, past performance is not an indicator of future performance. To that point, the most evident indicator would be the strong demand and limited supply of shophouses for sale, which the market has demonstrated time and again.

And even if you conservatively take the lowest CAGR of 7%, you will be doubling your money in the next 10 years. And that is already adjusted for inflation! 

Where to start?

If you’re looking for a safe property investment in Singapore that will help you beat inflation, buying commercial property is a great option. But not just any commercial property. 

Buying industrial space and shophouses in Singapore would be your best bet in beating inflation. Of the two, investing in shophouses would be the one to deliver the best returns over the long term. 

Demand for shophouses for sale remains high, and they are in limited supply, so now is definitely the time to act! You’ll enjoy a high return on investment, and you’ll have the peace of mind of knowing that your money is safe from inflation.

Working with a commercial property agent in Singapore is the best way to ensure you get what you deserve. At Commercial Realty Singapore, I provide a seamless service. I will work with you from start to finish to help you obtain assets that will give you the best inflation-beating return.

Let’s get to work!