Sunday, 22 July 2012

Commercial Property

I had a chat with one rich friend of mine recently. Her family run businesses and properties are part of their small investment. The conversation flip my mind and made me realised that instead of aiming for 2nd residential property, I could also consider 1st commercial property.

She introduced me the idea of commercial property after I shared that it is unlikely that low/middle income people like me will be able to pay the downpayment of 40% for a 2nd residential property if I did not fully paid up my first HDB loan for my first flat.

I did a search online and discover that at current prices, a typical 220sqft/21sqm shophouse/shop cost around 600k to 700k (around $2700psf). For the loan, one typically needs to pay 20% downpayment with loan period of 15-25 years (Financing margin of up to 80% of the purchase or valuation price, whichever is lower). Thus 20%*650k = 130k upfront payment is needed. This is actually much more affordable than 40% downpayment for a residential property which may cost around 200-300k for a studio condo. Rental income for this kind of commercial propery could hit around $3-4k per month and hopefully this should be able to cover the monthly installment amount and provide some minimum cashflow.

It is always good to know more and learn more and not restrict our knowledge to what one already know. Guess now I have another area to explore and learn more.

Any expert has anything to share on commerical property? Please correct me if you feel that any of my calculations or research or assumptions are wrong above.

Thanks in advance!

(Disclaimer: Personally, I think current price is too ex but I am noob in property investment. Thus, don't trust me.)


la papillion said...

Banks might not lend you the full 80 per cent. It all depends on your financial statements such as income, debt level etc.

Ah John said...

For commercial property, the loan interest rate is higher? Can rental higher than installment?

Greatsage said...

Good article. Thanks for sharing!!!

Anonymous said...

As far as I know buying commercial properties has already seen markedly increased activity for quite some time. Be careful if you are genuinely considering this as an investment option.


OT83 said...

Thanks all for the advice. My main objective is to share that there are such alternative available and we should be open to all these. However, please exercise caution before doing any investment.

Currently, I am still more comfortable with equity but I will explore more and learn more about commercial property first. There is no harm to learn more :)

tisanjosh said...

I also did a research online and got a lot of ideas about commercial property investment. I remember that the last tax rates on property business. Now it has been changed. The total value of commercial property was approximately $11 trillion in 2009, as measured by the CoStar Group and published in the Journal of Real Estate Management. Properties for sale in north london

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