Understanding Commercial Property Loan Rates in Singapore
Financing commercial properties involves unique considerations compared to residential properties. From higher loan amounts to different risk assessments, here's what you need to know about commercial property loan rates.
Commercial Property Financing Basics
Commercial property financing typically involves higher loan amounts and more stringent risk assessments by banks. Banks will carefully evaluate the property's income-generating potential, location, and your business financials. Consider your long-term business plans and cash flow when choosing loan amounts and terms.
Floating Rate Mortgages for Commercial Properties
Floating rates for commercial properties are typically pegged to SORA or bank-specific benchmarks. Given the higher loan amounts involved, even small rate changes can significantly impact your monthly payments. Floating rates work well if you expect rates to decline or plan to refinance within a few years.
2-Year Fixed Rate Mortgages
A 2-year fixed rate provides short-term payment certainty, which is valuable when managing larger commercial mortgage amounts. This option is popular among commercial property buyers who want initial stability while maintaining flexibility to capitalize on rate changes after the fixed period.
3-Year Fixed Rate Mortgages
A 3-year fixed rate offers longer-term protection against rate volatility. For high-value commercial property purchases, this stability can be crucial for financial planning. While initial rates may be higher, you gain peace of mind against rising interest rates.
5-Year Fixed Rate Mortgages
A 5-year fixed rate provides maximum long-term stability for commercial property financing. For high-value commercial purchases, this extended protection can be crucial for financial planning over a longer horizon. While initial rates may be higher, you gain maximum protection against rate volatility.
How Much Banks Lend
The loan-to-value limits that cap home loans do not apply to commercial property, so each bank sets its own. Most lend up to 80% of the price or valuation, whichever is lower, and less for older buildings or short remaining leases. If you borrow in your own name, your total monthly debt repayments still cannot exceed 55% of your income (the Total Debt Servicing Ratio).
Buying in a Company or Personal Name
In a company name, the bank assesses the company: usually two or three years of financial statements, its cash flow and its existing debts. Banks almost always ask the directors for a personal guarantee as well.
In your own name, the bank assesses your income, just as for a home loan. That can be simpler for a small office or shop, but the loan then counts against your borrowing limit for any future home purchase.
Industrial Property
Factories and warehouses (B1 and B2 industrial property) often come with shorter leases, commonly 30 to 60 years, and many sit on JTC land with its own rules on who can buy and how the space is used. Banks usually limit the loan tenure to the remaining lease and lend less as it runs down, so check the lease before you compare rates.
Why You Cannot Use CPF
CPF savings can only pay for residential property. For a shop, office or industrial unit, the downpayment, stamp duty and every monthly instalment must be paid in cash, so budget for the instalment from your business or personal cash flow.
What a Commercial Loan Costs Each Month
At today's lowest commercial rate of 1.50%, a $1,000,000 loan over 20 years costs about $4,825 a month. That assumes the rate stays the same for the whole loan; a floating rate or the end of a fixed period will change it. Try your own numbers in the mortgage calculator.
Investment vs Owner-Occupied Commercial Properties
Investment Properties: Banks may offer different rate structures for investment properties. Consider rental yield potential and property appreciation when choosing loan terms.
Owner-Occupied: If you're using the property for your business, consider how loan payments affect your cash flow and business operations. Factor in property tax and maintenance costs.
