Buying commercial property in Singapore is never easy, especially when it comes to commercial property investors. Sure, the right investment can roll out hot cash, but what happens if you are on the wrong side of the road?
Being big-ticket items, you just cannot jump into the sea and expect to swim above. You have to do your due diligence to help you understand how they are performing. With the latest cooling measures applied by the Government on 16 December 2021, your guessing game becomes more complex as to which direction you should dive.
In this article, I will discuss how the cooling measures have affected commercial properties by analysing the transaction patterns post the cooling measures, in the first quarter of 2022.
It can help you to look at whether it’s wise to invest in commercial properties right now. Further, you will see which commercial real estate is dominating the market, thus, having the potential to generate good cash flow and appreciate over time.
- What is the purpose of cooling measures?
- How are the commercial properties performing post the cooling measures?
- Are foreigners outbidding local buyers post the cooling measures?
- Which property type is excelling the most in the first quarter of 2022?
- Which districts have the most transaction volume in the first quarter of 2022?
- Are commercial properties HOT for investment?
- How to find an undervalued commercial property HOT with cash flow?
What is the purpose of cooling measures?
The primary purpose of cooling measures is to discourage speculative transactions so that property prices remain in balance. The latest cooling measures were meant to slow down foreign ownership, investors and second home purchase that are not for their own stay.
In other words, it is a means to tax the wealthy to bring a balance between the high and low-income earners of society. This way, the government can ensure that all members of the society can afford at least one home. The cooling measures have a direct impact on residential properties, which will lead to an indirect effect on commercial property pricing.
Now, it will be interesting to see if the cooling measures really succeeded in deterring commercial buyers.
How are the commercial real estate performing post the cooling measures?
A look at the buying commercial property in Singapore shows that all classes of commercial properties have exponentially increased following the latest cooling measures. Thus, the purpose of discouraging commercial buyers cannot be fully achieved.
Though they are big-ticket items with much higher prices than residential houses, commercial transactions increased by 489.93% in Dec 2021 compared to Nov 2021. The transaction soared in Jan 2022 as well, with similar figures as the previous month.
However, the sales seem to be at their lowest in Feb 2022. This is probably when the full effect of cooling measures is reflected more visibly in the commercial industry. Besides, a lot of global events reared heads in this short month. The country was affected by the Russia-Ukraine war as oil prices shot up and inflation rose to a decade high.
But things seemed to pick up in March again as the sales figure reflected a rise of 107.42% compared to Nov 2021. As April came, the transactions were still positive, proving that commercial properties have not plummeted to a negative number even once since the cooling measures in 2021.
Are foreigners outbidding local buyers post the cooling measures?
Since the cooling measures in 2022, the transaction has increased despite challenges in February 2022. This is due to the sale of some big ticket items. Besides, foreign investors are still buying commercial properties in Singapore despite the ABSD rising for foreigners by 30%.
It seems foreigners are finding that commercial property investors’ benefits outweigh their costs. Though they are expensive and buyers have to pay hefty ABSD, the property tax for commercial buildings is at a flat 10% of Annual Value (AV).
The rental yield for commercial properties is much higher than for residential properties. If you own commercial properties in a strategic good location, you can even mint an appreciable profit margin on its sale.
Besides, foreigners are not allowed to own landed properties in Singapore, but they can invest in commercial properties. As a result, they favour buying commercial real estate.
Which property type is excelling the most in the first quarter of 2022?
There are quite a few segments of buying commercial property in Singapore.
- Retail comprises restaurants, bars, shopping malls, gyms, shophouses and HDB shophouses.
- Industrial and commercial properties that include offices, warehouses and factories.
- Hostels and hotels.
Post the cooling measures; I reviewed the sales transaction of commercial properties for the first quarter of 2022. It seems the retail segment has done impressively well, with an increase of 31.10% in the first quarter of 2022.
Shophouses, which are a subset of retail, also increased transactions by 28.23%. Other than that, office buildings have performed quite well.
If you are in buying shophouses, READ The hacks you should know before investing in a shophouse?
However, it is crucial to note that hotels, warehouses or factories were not on top of buyers’ minds in the first 3 months of 2022. So, if you want to invest in commercial property in Singapore, best to invest in the office, retail or shophouse transactions as they are most in demand.
Breakdown of hike of commercial property post-cooling measures
Which districts have the most transaction volume in the first quarter of 2022?
Location is a key component of valuing a property. Buying similar property in different districts can differ drastically in value and rental income. In the first quarter of 2022, 88.75% of commercial transactions took place in the Central Region of Singapore. That means this district is ripe for buyers as demand is soaring, promising a good rental yield.
Breakdown of commercial property transactions by region post-cooling measures
Are commercial properties HOT for investment?
The investment sentiment is still very strong for buying commercial property in Singapore. In fact, since residential property tax will almost double by 2024, many investors may be diverting to commercial properties to avert this cost.
However, that does not means it is a bad time to buy residential. In fact, residential property buyers will find less competition, especially if they are first-time home buyers looking to upgrade their property.
To know how cooling measures are affecting Singapore residential housing, READ The effect of the latest cooling measures in quarter 1 of 2022.
To make the correct decision, you have to decide what you need right now to incentify your portfolio. If you have the money, commercial properties are fiery HOT and can be your ideal profit-generating machine. What you have to do is to consult someone to find an undervalued commercial property in a strategic location to maximise your returns.