{"id":58377,"date":"2022-08-26T14:04:34","date_gmt":"2022-08-26T06:04:34","guid":{"rendered":"https:\/\/www.99.co\/singapore\/insider\/?p=58377"},"modified":"2024-10-25T12:31:07","modified_gmt":"2024-10-25T04:31:07","slug":"buy-commercial-property-before-complete-hdb-mop","status":"publish","type":"post","link":"https:\/\/www.99.co\/singapore\/insider\/buy-commercial-property-before-complete-hdb-mop\/","title":{"rendered":"Can you buy a commercial property before you complete your HDB MOP? Apparently yes."},"content":{"rendered":"
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Most of us know that when we buy a BTO or HDB resale flat, we are required to stay a minimum of 5 years as part of the Minimum Occupation Period (MOP)<\/a>, before<\/em> we can invest in a 2nd residential property.<\/p>\n

However, did you know that even before you fully serve the MOP for your HDB flat, you may invest in commercial or industrial property with no penalties?<\/p>\n

Better yet, because it is not a residential property, you do not pay Additional Buyer’s Stamp Duty (ABSD)<\/a> for it even though it is your second property (after your HDB flat).<\/p>\n

Besides completed commercial or industrial units, you are also allowed to purchase vacant land as long as it’s not zoned for residential development.<\/p>\n

Here’s what HDB says<\/a>:<\/p>\n

\"HDB<\/a>
(Image credit: HDB)<\/figcaption><\/figure>\n

 <\/p>\n

If you’ve just moved into your new or resale HDB flat, and you’re thinking of investing in a 2nd property while still under MOP, you have options – as long as the property in question is not classified as residential.<\/p>\n

You can choose to invest in that 2nd property, become a landlord and lease it out to commercial tenants, or take over the premises yourself as an owner-occupier, renovate and start your own shop, office, or cafe, as long as you apply and get the right operating licenses.<\/p>\n

Also, the commercial or industrial property does not need to be in Singapore; it could be overseas as well.<\/p>\n

\"\"<\/a>
Wouldn’t it be nice to own a little cafe on a street corner and then pass it on to your children?<\/figcaption><\/figure>\n

Pros and Cons of Investing in a Commercial or Industrial Property while still under HDB MOP<\/h2>\n

There are, however, some pros and cons when you decide to invest in commercial or industrial property (while still being under HDB MOP). Here are a few:<\/p>\n

Why invest in Commercial Property?<\/h3>\n
    \n
  1. You have additional funds to invest in property, but because you have yet to complete the Minimum Occupation Period on your HDB flat, you cannot sell your HDB flat or invest in a 2nd residential property.<\/li>\n
  2. You want to grow your own business and have a stake in its premises.<\/li>\n
  3. During the 5-year MOP, you can rent out your rooms, but you cannot rent out the entire flat until after. If you invest in commercial or industrial property, you can lease out the entire premises to earn additional rental income. Also, the rental yield from residential properties is usually 2-3%, but commercial properties can provide yields of about 5% (or even higher).<\/li>\n
  4. You believe that the commercial or industrial property you’re eyeing will appreciate and provide a significant capital gain or inheritance for you and your family in the future.<\/li>\n
  5. Most commercial properties (usually) have a lower price per square foot compared to residential properties.<\/li>\n
  6. Unlike residential rental tenancies, commercial tenancies, especially for large commercial spaces, have longer lease terms, like 5 to 6 years. This ensures a steady stream of rental income for several years to come.<\/li>\n
  7. If you’re taking a bank loan to fund the commercial property, the maximum loan-to-value (LTV) that the bank can loan you is up to 80% of the property value. For residential property loans, the maximum is 75% (for banks).<\/li>\n
  8. Since this is a commercial property, you do not need to pay ABSD for it. As for Buyer’s Stamp Duty (BSD)<\/a>, the rate is lower than a residential property if the value of the property is above S$1m. For example, if you buy a S$1.5m commercial property, your BSD is S$39,600, but for an equivalent residential property, the BSD payable will be S$44,600.<\/li>\n<\/ol>\n
    \"The<\/a>
    The challenge in investing in any commercial or industrial property is financing and maintaining it, and of course, finding suitable tenants for it.<\/figcaption><\/figure>\n

    Why a homeowner may not want to invest in Commercial Property?<\/h3>\n
      \n
    1. Unlike residential properties, you cannot finance a commercial property with your CPF savings. You will need to pay out of pocket and\/ or secure a bank loan. This includes paying for fees like stamp duty, legal, agent commission, valuation and so on. If you’re taking the loan as an individual investor, you will be subjected to prevailing regulations such as the Total Debt Servicing Ratio (TDSR)<\/a>, which is currently at 55%. So, if you’re someone with a lot of unsecured and secured debt to pay, hold back on investing first and pay off your debt.<\/li>\n
    2. The final quantum of the bank loan for your commercial or industrial property will depend on what you’re using the commercial property for. The bank will evaluate the expected returns, potential risk, and market situation before deciding exactly how much it can loan you. This is unlike residential properties, where the loan quantum is based on the property value and your credit score. The interest rate for commercial property loans is also typically higher than for residential property loans (0.5-1% higher).<\/li>\n
    3. \u00a0Loan tenures for commercial property are usually shorter, say 20 to 30 years. Residential property loans are usually longer (30 years for HDB flats and 35 years for non-HDB properties).<\/li>\n
    4. When you take a commercial property loan, you are usually locked in for 2 to 3 years. If you somehow decide to sell your property during this period, you may incur a penalty fee of around 1.5%. You will also be subject to Seller’s Stamp Duty (SSD)<\/a> for industrial properties (e.g. factories). The SSD rates are higher than that of residential properties. For industrial properties, the SSD rates are 15% of the property’s value for the 1st year, 10% for the second and 5% for the third. There is no SSD if it’s a commercial property.<\/li>\n
    5. Even after purchasing the commercial or industrial property, you may not find a commercial tenant interested in renting the unit. With no incoming rent to tide through your investment, you still need to pay costs like maintenance and income tax (which is a flat 10% of the property’s annual value every year).<\/li>\n<\/ol>\n

      So whether you’re an investor or a business owner, investing in commercial or industrial property depends on your short-, mid-and long-term intentions, rental yield, appreciation, market conditions, and timing.<\/p>\n

      With such properties, location, and accessibility play important roles as they determine the property’s value, yield, and demand.<\/p>\n

      Deciding What to Buy<\/h2>\n

      Once you’ve decided that you want to invest in a commercial or industrial property, here are some ways you can start:<\/p>\n

        \n
      1. \n

        Identify the Zone<\/h3>\n<\/li>\n<\/ol>\n

        99.co has commercial listings<\/a> for Shophouses, Retail, Offices, Industrial, and Warehouses, so that’s a good place to start.<\/p>\n

        \"99dotco<\/a><\/p>\n

        Under each listing, there is a Property Segment that tells you whether the listing is Commercial, Industrial, or mixed with Residential. So if you’re still under MOP, you should only view the ones listed as Commercial or Industrial.<\/p>\n

        Another way to identify the zone the property is classified under is by referring to the URA Masterplan<\/a>. We have an article<\/a> on how to do this, but here’s a summary:<\/p>\n