Investing in Commercial real estate

[revhappy]

Hi Guys,

I have just got this idea about investing in Commercial real estate in Singapore.

Can you guys please let me know what the advantages/disadvantages are in Investing in commercial real estate? Is the rental income more than residential?

Any restrictions on foreigners in investing in commercial real estate? How about loans from banks?

I like the idea because I could buy a small space like a shop in a retail mall and if it costs like 100k then its within my budget. condos cost upwards of 500k so its beyond me. So is HDB since I am on EP.

Thanks in advance!

[sundaymorningstaple]

Might want to think about it this way as well......

Singapore REITs

[revhappy]

Thanks SMS. REITs seem to be a easier way to play properties. Will definitely consider this.

[paramountac]

Hi Guys,

I have just got this idea about investing in Commercial real estate in Singapore.

Can you guys please let me know what the advantages/disadvantages are in Investing in commercial real estate? Is the rental income more than residential?

Any restrictions on foreigners in investing in commercial real estate? How about loans from banks?

I like the idea because I could buy a small space like a shop in a retail mall and if it costs like 100k then its within my budget. condos cost upwards of 500k so its beyond me. So is HDB since I am on EP.

Thanks in advance!

A shop in a mall that cost $100k? Are you in Singapore? Even a HDB shop house will cost $1mil

[ksl]

Have to agree a 100k will not get you much at all! Though there are many other opportunities to turn your 100K into 200K, if you have the time to explore opportunities and do it. My main suggestion would be to keep control of your money, the minute you hand your money to an institution or anyone else the risk of losing it goes up.....Minimise your risk, but get a good return on your money....do business! At least you will call the shots and be responsible for any losses.

Property now after the reform, will cool down a little. People here lease areas and sublease at a higher price. Normally shop space can be 2500 to 7000 a month in the heartlands, outside of shopping malls. I did make some inquiries and a mobile phone with only 3ft wide 2.5 meter long was paying 7000$ a month. Not workable now the fruit stall outside of kovan shopping mall is also paying 7000$ a month Talk about crazy prices
A milk tea business in Toa Payoh was also paying 3k a month and i believe they had to sell 300 cups a day to break even, not a feasible idea from my point of view, yet people start up and close down because they lose all their money.

I looked into renting the property and discovered the guy was wanting to sublet and earn 1k a month because his business was not viable, so they look for another idiot to sign on the dotted line for the 2 year contract. I'm shocked that people actually fall for it.

My point is there are lots of speculators and lots of mugs, you have to be very very careful or loose your money, because many people here are very good at what they do, they call it business.

Revhappy I just discovered this in the new budget 2010 for angel investors

Tax Deduction for Angel Investors Under this incentive, an approved angel investor needs to invest a minimum of $100,000 into a start-up in a Year of Assessment, in order for him to enjoy tax deduction at 50% of his investment at the end of his second year of holding of the investment. The deduction to an approved angel is capped at $500,000 of investment into qualifying start-ups per Year of Assessment. The incentive is valid from 1 March 2010 to 31 March 2015 (both dates inclusive) and applies to qualifying investments in qualifying start-ups made during this period.

SPRING Singapore which administers this incentive will release the details of the scheme by June 2010

[revhappy]

Thanks a lot, KSL. Thats very valuable advice!

I used to always wonder how do the mobile phone reseller shops in HDB estates make money. I mean how much can you make by buying and selling used phones, considering the high rent that they have to pay. Maybe most of the money they make is by recharging SIM cards.

[sedna888]

Some shops are actually run by loan shark..just to laundry and wash their money.

[ksl]

Some shops are actually run by loan shark..just to laundry and wash their money.

Exactly!

[urbanzen]

I feel your pain on this issue. My wife recently opened a fashion shop inside the Orchard district, and we're not able to see the breakeven point with profit vs rentals. An area full of similar competitors vying for sales, which means that the huge pie you get a nibble out of.

We're pretty scared and shaken up right now due to the 2 years lease agreement we signed on, but it is the first week of the store opening, so we are frowning our foreheads and pushing on, to see if it is a typical 3 months break-even turnover with repeat customers and such.

Anyhow, are there other forumers that have ran retail shops before that might be able to exchange ideas with me via PM with their experiences of Ups, as well as Downs in the retail industry?


*sorry about the post bump, I only realised that the thread is 2 months old after I've posted =(. Please don't reply and let the post drop back down.

[trudywee76]

Some shops are actually run by loan shark..just to laundry and wash their money.

Yes I totally agree, I personally know a few of them

[lizzy0302]

Advantages:

Tax benefits
Negative gearing
Long-term investment
Positive asset base
Safety aspect
High leverage possibilities

Disadvantage:

Liquidity
Vacancies
Bad tenants
Rising interest rates
Property oversupply
Ongoing costs
Putting all your eggs in one basket
Capital Gains Tax
Other costs (which involves purchasing and disposing of the property can be substantial).

[sundaymorningstaple]

Disadvantage:

Liquidity
Vacancies
Bad tenants
Rising interest rates
Property oversupply
Ongoing costs
Putting all your eggs in one basket
Capital Gains Tax
Other costs (which involves purchasing and disposing of the property can be substantial).

One has to wonder how long it would have been before She? made her move. A 'peens spammer testing the waters. How do I know? Easy. Shows location as Singapore, IP address as the 'peens and listing Capital Gains Tax as a disadvantage (This is what caused my curiosity in the first place). Singapore doesn't have any capital gains tax.

[taxico]

Can you guys please let me know what the advantages/disadvantages are in Investing in commercial real estate? Is the rental income more than residential?

Any restrictions on foreigners in investing in commercial real estate? How about loans from banks?

I like the idea because I could buy a small space like a shop in a retail mall and if it costs like 100k then its within my budget.

i don't think there're restrictions on foreigners for (purely) commercial property.

the interest rate on your loan is higher for commercial properties (you can't get a place for $100k i think, unless the lease left is <10 years) and they're more stringent when it comes to approving your loan, especially if it's not for your own use.

if you incorporate a company to hold it, the first three years of taxes are nil and you can make (substantial) deductions for subsequent years.

but if you incorporate a company + register for GST to claw back the GST paid on the property in your purchase, the company cannot be closed until the refunds are returned (literally returning the amount refunded or by selling off the property).

the rental income is actually not too bad if you know what you're buying/doing.

i bought a shophouse and i rent the downstairs out for $3.8k and the upstairs for $2.8k - my monthly repayments (50% loan) are $4k++ (can't remember if it's $4.2 or $4.5). both upstairs and downstairs are approved for commercial use.

change of use for the second story from residential to commercial takes about $8-$15k depending on the use required.

i have another pair of shophouses, one of which i sub-letted out for $3k downstairs and $2.1k upstairs (residential). the other unit has its upstairs rented out for $2.3k and i keep the downstairs unit as my office/man cave.

another office i sub-let out for $2.5k - with my cost at $1.25k a month. i paid $40k to take over the lease from the original lessee.

it's not an issue when the place is tenanted, but when it's empty, you'll have to ride your realtor hard to find a suitable tenant at the rent you want as they can be lazy. some times you have to wait until such a person/company comes by...

i only go for a minimum 2 year rent period as it means they are less inclined to close up shop (literally) in a short span of time.

bear in mind renovation bills can rack up. malls are nice but rare and pricey - i'm not going there yet. i don't believe in reits. there're commercial value buys to be found if you do your homework.

location is important but so is a good tenant and realtor. you should also not be an evil landlord and jack up the rent every year - i try to keep it as close to the original rate as possible.

i enjoy doing it and it's okay money. good luck!

[londonmerlion]

If you are new to real estate investments and don't really have the deep pockets needed to ride through the different cycle- you probably would want to stick with REITs or Funds of REITS.