Property investment in Singapore can be very lucrative. The ideal of enjoying a regular income from rental properties, as well as seeing your investment appreciate over time, is appealing to both Singaporeans and foreigners alike.
The next question is whether property investors choose a residential property or a commercial property. In Singapore, there are several differences to consider, and it’s worth knowing what they are to make the right decision for yourself.
| Residential Property | Commercial Property | |
| Length Of Lease | 99 years, 999 years, or freehold | Typically 30 years or 60 years |
| Buyer Stamp Duty | Top marginal rate of 6% for residential properties | Top marginal rate of 5% for non-residential properties |
| Can CPF Be Used | Yes, but the Retirement Sum must be set aside | No |
| Loan to Value (LTV) | Maximum of 45% for a second property | Typically 80%, though it can go up to 90% |
| Property Tax | From 12% to 36% of Annual Value | 10% of Annual Value |
| GST | Exempted | Subject to 9% GST |
| Seller’s Stamp Duty | Payable if sold within 4 years | Payable only for industrial properties, if sold within 3 years |
| Additional Buyer Stamp Duty (ABSD) | Yes | No |
| Foreigners | No restriction for non-landed private homes. Approval needed for all others. | No restriction, although approval is needed for “Commercial & Residential” developments |
#1 Length Of Lease
Many residential properties in Singapore operate on a 99-year, or 999-year lease, or freehold ownership. On the other hand, commercial properties typically come with shorter lease tenures of 30 or 60 years, mainly to make them more affordable and accessible.
The length of a lease gives investors a sense of how much the value of their properties can appreciate, providing them with an investment timeline to work with.
#2 Buyer Stamp Duty
All properties in Singapore are subject to Buyer Stamp Duty (BSD). BSD is computed based on the purchase price or market value of the property, whichever is higher. BSD is rounded down to the nearest dollar, subject to a minimum duty of $1.
From 15 February 2023 onwards, the Buyer Stamp Duty rates are as follows:
| Purchase price or market value of the property | BSD rates for residential properties | BSD rates for non-residential properties |
| First $180,000 | 1% | 1% |
| Next $180,000 | 2% | 2% |
| Next $640,000 | 3% | 3% |
| Next $500,000 | 4% | 4% |
| Next $1,500,000 | 5% | 5% |
| Remaining amount | 6% |
Note that residential properties have a top marginal rate of 6% while non-residential properties have a top marginal rate of 5%. That means, residential properties purchased or valued above $3 million have a slightly higher BSD than commercial properties purchased or valued at the same amount.
Read Also: How Much Buyer’s Stamp Duty (BSD) And ABSD Singaporeans, PRs And Foreigners Need To Pay – And When
#3 Can CPF Be Used For Purchase
When buying a second or subsequent residential property, whether for investment or otherwise, you can use your savings in your CPF Ordinary Account up to the lower of the purchase price and valuation price. However, you will need to have at least the Basic Retirement Sum set aside. If you have no residential property that can last you till age 95, you will need to set aside the Full Retirement Sum, which is two times the amount of the Basic Retirement Sum.
As CPF savings are mainly used for housing and retirement, you will not be able to use your CPF to pay for a commercial property.
#4 Loan-To-Value (LTV)
You will be able to take a bank loan to help pay for the residential property or commercial property you’re investing in.
However, for a second or subsequent residential property, the loan-to-value offered by banks is no more than 45%. On the other hand, banks are more willing to extend at least 80% LTV for a commercial property loan and can even go up to 90% in certain circumstances.
Commercial property home loan rates are typically lower than those of residential property loans.
#5 Annual Property Tax
Property tax in Singapore is applied on a progressive scale for residential properties and is pegged to the Annual Value (AV) of the property. Annual Value in Singapore is defined as the estimated gross annual rent of the property if it were to be rented out.
For non-owner-occupier residential properties, annual property tax starts at 12% for the first $30,000 of AV, going up to 32% for AVs above $140,000.
Commercial properties, on the other hand, have a flat annual property tax of 10% of AV. This applies even if you have bought the property for your own use and occupation.
Read Also: Complete Guide To Property Tax For Homeowners In Singapore
#6 GST
The Goods And Services Tax (GST) is not charged when buying a residential property. However, it will be charged on purchases of commercial properties.
#7 Seller’s Stamp Duty
Residential properties in Singapore are subject to Seller’s Stamp Duty (SSD) if they are sold within 4 years. This is to curb the flipping of residential properties, which tends to drive property prices up.
Seller’s Stamp Duty is not charged on most commercial properties, such as office and retail. However, industrial properties such as factories, showrooms and warehouses are subject to SSD if sold within 3 years.
Read Also: Seller’s Stamp Duty: How Much You Have To Pay If You Sell Your Property Within 4 Years
#8 Additional Buyer Stamp Duty
Perhaps the most significant difference when choosing between investing in a residential property or a commercial property is the Additional Buyer Stamp Duty, or ABSD.
ABSD is incurred when Singapore Citizens buy a second residential property, and when Singapore Permanent Residents, Foreigners, Entities, and Housing Developers buy any residential property.
With rates starting at 20% on the higher of the purchase price or market value when buying a second residential property, it is a crucial factor to consider if the investment is sound.
There is no ABSD charged on commercial properties.
#9 Foreigners Owning Property In Singapore
If you are a foreigner looking to invest in property in Singapore, you can consider residential properties like condominium units or commercial properties such as shophouses.
However, for landed private homes such as bungalows, semi-detached houses and terrace houses, or for developments zoned as “commercial & residential” by the Singapore Land Authority, approval will be needed before you can purchase these properties.
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