The decision to purchase or to lease commercial or industrial real estate in Australia is contingent upon many factors. If you’re a business owner it’s mainly about the economics of ownership versus that of leasing.
Here are a few of the things which will influence the decision on whether to lease or to purchase a property.
They are: – Property prices, Property price growth, Down-payment, Present Rental Rates, Expected future lease rates, Interest price, Maintenance cost, Tax, Tenure of loan (impacts the monthly repayment and cash flow), Renovation expenses, Security deposit, Goods and services Tax (GST), Agent Fees (for marketing and occasionally purchasing)
If you are leasing your retail store or office area, you can consider using the calculator to make a decision on whether to purchase or lease commercial property as you’re the guaranteed tenant. To put it differently, you will always have the ability to rent it out.
However if you’re aiming to purchase for investment, then you’ll have to consider carefully the possible rent that you could obtain in the unit.
Here are 10 considerations to think about when deciding whether to lease or buy a commercial property. Together with Singapore becoming more and more global, many overseas investors and developers are coming to Australia. It wouldn’t be surprising if more overseas buyers begin to buy up industrial and commercial properties considering that there isn’t any Additional Buyer Stamp Duty (ABSD) for these properties. This could in the future increase the price of doing business in Singapore and cause rent to rise. The industrial property downturn is seen by high quality business advisors as a golden opportunity to ensure your business joys of owning a premise.
Property costs in Singapore have seen quite a lot of variance through the years. While commercial property prices haven’t been influenced by the residential property cooling measures, the outlook for the market segment is more sensitive to local and international economic conditions.
Also, certain property types and rental tenures may not always be available in certain areas, so more research may need to be undertaken before a suitable property can be found.
It is particularly important for buyers who intend to continue to land in the short to medium term to track the trajectory of land prices through the past few years in all the regions where they’re thinking of making a purchase, and to pre-empt any development in the area where the purchase will be made.
That’s why it is essential to perform research into future growth plans in the region where a possible investment property is situated. If at all possible, make visits to the work site and construction to inspect the property first-hand and talk to the construction team management to get an idea of where the project is at. Additionally it is advised to compare the last transacted prices of different units in the exact same and similar buildings.
Mortgage Loan interest rates
Comparing loan interest rates and comprehending the difference between floating and fixed interests is important before choosing a home loan and there are plenty of broker websites and other resources out there with mortgage interest rate data and trends.
Floating Interest rates in Singapore are usually pegged to the Singapore Interbank Offered Rate (SIBOR) or the Singapore Swap Offer Rate (SOR), which are always changing. The SIBOR is calculated based on the local interbank market, while the SOR fluctuates according to the international markets, which are inclined to be less secure than the former.
Fixed interest rates make certain that the borrower enjoys a pre-determined rate of interest for a predetermined period of time, usually several years, and they pay a floating interest rate. Borrowers who would like to restrict their exposure to changes in the marketplace might opt for fixed rate of interest mortgages.
Investors should continue to monitor interest rates during the length of the loan tenure and refinance when it’s wise to do so.
Rents in Singapore can vary considerably according to location. It’s very important to conduct research not just on lease prices in the area you’re considering of purchasing at, but also to analyse the property type and location, as these can have a fantastic influence on rental yield.
For example, for retail spaces, an individual has to consider factors such as how much walk-in traffic that the unit can get. For office spaces, units in a well renovated building that fosters business prestige can usually command higher rents than those in a run-down office construction in the exact same area.
Tenure of Loan – Tenure of Real Estate Lease staying
The tenure of the remaining lease on a property being considered for purchase will impact not just how much an investor must pay upfront, but how soon he or she’ll have to market the house to turn a healthy profit.
While shorter lease tenures tend to reduce the purchase price of a property and so make it more affordable to buy, this may also have an effect on investment gains once the property is sold.
It is, therefore, important to consider how long the investor intends to have a hold on the property. An investor who plans to have the property in the long and medium term ought to be careful not to buy properties with few years of lease remaining.
The amount of renovation a specific property will require is a significant element to think about, since the cost of renovations on even a modest-sized industrial or commercial area can be in the tens of thousands.
Unlike renovating a house, when renovating commercial or industrial property, it’s necessary to do so with increasing rental yields and investment gains in your mind, as opposed to simply making the building look more appealing.
Property Tax and Maintenance Fees
While property purchases can be excellent investments, buyers ought to know just how much they’d have to pay in taxes and for the upkeep of their property. For industrial and commercial property, property tax equal to 10 percent of the property’s yearly value is levied.
Landlords in Singapore typically require tenants to provide a security deposit–usually amounting to one or two weeks’ rent — that is returned when the tenant moves out.
Landlords must take care to record the initial state and condition of the property before signing a tenancy agreement with a prospective tenant, in addition to obtaining legal counsel and a trusted business advisor in the scenarios where they could be entitled to keep the security deposit.
Goods and Services Tax (GST)
The sale and leasing of commercial property in Singapore are subject to 7 percent GST if the proprietor is GST-registered. GST is also likely to be levied on the supply of accessories and furniture and real estate agents’ fees. This can have a substantial impact on buyers’ investment gains.
Many property purchases are handled by attorneys who generally bill on a per-purchase basis. It’s typical for commercial landlords to get legal advice when drafting a tenancy agreement.
While a property purchase is generally charged on a per-project foundation, it’s a great to ask your attorney for a quotation before beginning to make sure their fees are within your budget.
Investors who are concerned about this should remember to raise this matter with their attorneys before commencing work with them.
Landlords who engage a broker to assist them to purchase, sell or lease out commercial property are liable to pay a commission. While fees may vary, agents usually charge 1 percent to 2 percent of the selling price for sales and 0.5 to two months’ worth of rent for tenancies, based on the quantity of rent and the length of the tenancy agreement.
It is common practice to pass brokers’ fees on to the tenant in the tenancy agreement.
Finally, never select an agent indiscriminately and be ready to look into several mortgage broker websites and interview several agents before finding one you’re delighted to work with from the long term. Investors should be searching for agents that are responsive and knowledgeable about the industrial and commercial real estate market.
In property, there are principles and there are thoughts. When sentiments run wild, that could defy logic for an elongated time period. And ultimately when everybody makes silly decisions, it’s also possible that the individual that’s not silly will lose out.