Is a Renovation Loan for Commercial Property a Smart Investment?

Business partners discussing about applying for a renovation loan for the commercial property they acquired

Table of Content

When most people in Singapore think about investment property, private property usually comes to mind. While these residential properties are generally reliable investments, they aren’t the only options that you have. Enter commercial properties.

There’s the potential for higher returns and this can increase further when you spruce it up after obtaining a renovation loan for a commercial property.

If you are unfamiliar with how to get an unsecured loan Singapore from a licensed money lender in Singapore, this guide is essential for you.

Is this the best time to invest in a commercial property?

This is a fair question considering the economic downturn caused by COVID-19. However, Prime Minister Lee Hsien Loong’s speech on May 31, 2021 made it clear that Singapore was done with lockdowns. The nation would move forward with the assumption that COVID-19 is an endemic disease.

Although it took almost a year for Singapore to adjust to living with COVID-19, the country eventually succeeded and life now is almost indistinguishable from the pre-coronavirus years.

Furthermore, the commercial property market which has been subdued over the past two years could rebound. If things do progress as planned, we could see a quick spike in commercial real estate prices.

Therefore, a renovation loan for commercial property at this time does seem like a good investment.

What are commercial properties?

Commercial property is any space that is reserved for business activities, hence the name. It can be a store that sells products to people, a warehouse that stores inventory, a factory that manufactures or assembles items, or an office that manages a company’s operations.

The most common reason people take up a renovation loan for commercial property in Singapore is to finance the refurbishment of:

  • Offices
  • Retail stores, including restaurants and clinics
  • Hotels
  • Warehouses
  • Factories
  • Commercial spaces in mixed-use developments

Despite Singapore’s relatively small size, there is a huge market for commercial property, no matter which region you’re looking at.

For example, the centre of Singapore houses the Central Business District and the country’s tallest skyscrapers. On the other hand, the outskirts of Singapore are generally where factories and warehouses are found because there’s more space available.

Commercial Property Investment Considerations

Any good investment is backed by a sound strategy. That is definitely the case if you decide to take up a renovation loan for a commercial property since you’ll have to both buy the property and renovate it.

Here are four important factors that you need to consider:

1. Length of the lease

How long are you willing to wait before withdrawing your capital? A short-term lease is a great idea if you expect the post-COVID-19 economy to rebound rapidly before tapering off. In that scenario, you can make a large profit in a short period. You can then sell the property when the market cools down and you’ll be free to reinvest your capital in another asset.

A long-term lease is better if you do not want to constantly analyse the market and wonder when’s the best time to stop investing. Barring another global pandemic or black swan event, prices for Singapore properties generally rise in the long run.

2. Tax considerations

Will your renovation loan for a commercial property end up causing you to pay higher taxes? The rules and regulations vary widely between commercial and residential property investments. Moreover, residential properties, especially HDB flats, are eligible for tax grants and exclusions that do not apply to commercial premises.

If you are only familiar with residential real estate, you should speak with a reliable property agent and a tax consultant before you decide on investing in a commercial property.

3. Financing considerations

Is the cost of purchasing a commercial property and then getting a renovation loan worth it? Just as it is with tax considerations, the financing options for commercial and residential properties are different.

Many of the grants and exemptions that you may qualify for when purchasing an HDB flat do not apply when you are investing in commercial real estate. It’s important to iron out the details and perform the necessary calculations before taking the plunge.

4. Cost considerations

Will you set up your own business or rent the commercial space out? What are the tax and maintenance implications for each of those options? It’s important to note that most residential property investors are not aware of them.

Your renovation loan for a commercial property will go to waste if you do not find out what other expenses need to be covered. Additionally, look at the property’s vacancy rates and how the neighbourhood is being developed before you decide.

If you are still unsure about a renovation loan for commercial property, speak to Dio Credit’s loan executives. We will help you decide which properties to focus on, clarify the renovation loan’s details, and answer any other questions you might have. You can contact us here.

Want more useful information on loans and personal finance? 

Check out these articles below in your free time.


Table of Content