As Singapore continues to bounce back from the Covid 19 pandemic, we’re seeing a positive uptick in commercial property trends. Both offices and retail spaces continue to see increasing demand, largely driven by Singapore’s economic stability and attractiveness to private investors.
Among the types of commercial real estate that owners seek to own , include office spaces, retail lots, and industrial units like factories and warehouses. Owning a commercial property in Singapore is no mean feat, as these property prices are among the highest in the region. A corner retail unit in Ang Mo Kio is going for almost $3.4 million and a shophouse in Neil Road can cost up to $12.5 million. In order to finance these purchases, buyers often resort to applying for commercial property loans.
Commercial real estate loans have a specific set of factors that affect eligibility, loan margins, interest rates and repayment tenor. Learning about the various aspects that influence your commercial loan can help you make informed decisions. In this way, you will also be able to streamline and optimise the application process for more positive outcomes.
Commercial property loans are much more dynamic than home loans; lenders offer terms and conditions that vary and can change according to the different factors. Some of these factors fall within the purview and control of the borrowers, whereas others are solely based on the decision of the lenders. Still, others fall beyond the control of either party.
Businesses that apply for commercial loans have to fulfil a set of basic requirements before they can be considered for financing. Most lenders mandate that companies be incorporated locally in Singapore for at least 12-24 months, and at least 30% stake in the company has to be owned by a Singaporean citizen of PR.
Furthermore, some banks and lenders also require you to have a turnover rate of $20 million or below per year to qualify for their loan packages. As with many other business loans, your corporation will also be required to submit several documents as part of the application process. These include:
There may be slight variations in the documents required by different lenders. However, they will not vastly differ from those listed above.
These documents are necessary to reflect the financial health of your company, and can impact the terms of your loan, especially your interest rate. Healthy financial and bank statements lend credibility to your company and reinforces your ability in making timely repayments, hence eliciting lower interest rates from lenders
Borrowers, whether individuals or corporations, will always be treated more favourably if they have a healthy credit record. A good credit score is proof that one is a responsible borrower who makes timely repayments on their debts. Learn how to read your Credit Bureau Score.
A highly effective strategy to increase the probability of your commercial property loan being approved is to improve credit scores. This would involve settling outstanding debts and keeping debts to a manageable level.
A healthy debt-to-income ratio is also desirable in borrowers. Although there is no hardline numerical minimum or maximum value, banks and other credit institutions will have a more favourable impression the lower your debt-to-income ratio is. The better your overall credit-worthiness is, the better the terms and conditions offered to you, such as being able to enjoy lower loan interest rates.
The loan terms and conditions offered by a lender does not solely depend on the features of the borrower, such as creditworthiness and annual turnover. Several aspects of the property being purchased will also be taken into consideration. This includes the unit’s type, size and location. Additionally, lenders will also consider the property’s purpose, perceived risk, and expected returns on investment. Market conditions also play a role, such as the current demand for the specific property type and price trends.
These elements have a significant impact in determining your loan-to-value (LTV) limit, which is the maximum margin of financing you can receive based on the price of the property. The better the prospects of your property, the better your loan terms and conditions will be.
For instance, if your business intends to purchase an office unit in the Central Business District and you plan to list for rent. The current market trend shows a robust demand for such spaces and rental yields are projected to increase. Lenders will acknowledge the potential of such a property, and will adjust lending terms accordingly in your favour.
Lenders in general offer two types of interest rates, fixed and floating. Floating interest rates are offered as loan packages pegged to SORA (Singapore Overnight Rate Average). Other interest rate benchmarks have been gradually phased out, and by 2024, SORA will become the only interest rate pegging platform left.
SORA interest rates fluctuate according to the changing economic environment of Singapore, increasing with the rapid improvement of its post-pandemic economic outlook. Conversely, in times of economic slowdown, the interest rate may experience a decrease.
Fixed interest rate loan packages are also available, and offer more stability for borrowers. However, they are not as widely offered as those with floating rates. Fixed rates loan packages tend to have higher interests to mitigate the risk of rate fluctuations for the bank, whether the fixed rates are for a limited period or for the entire tenor of the loan.
Commercial property loan interest rates are not usually disclosed by lenders to the public. However, with platforms such as Lendingpot, you will be able to compare the interest rates from our partners in a transparent and efficient manner. Once you register, you will be able to receive offers from lenders within as little as 48 hours.
The availability of loans, its interest rates and the repayment tenors offered are also significantly affected by economic conditions. In general, an optimistic economic outlook will mean that lenders are more willing to give out commercial property loans with more affordable interest rates.
The reason for this stems from the fact that borrowers will also benefit from the current economic boom and be able to make timely repayments on their debts. For lenders, loans are a form of income. The more healthy borrowers they service, the higher their ability to earn.
Some of the macroeconomic factors that affect loan availability and conditions include annual national GDP, employment rates, inflation and market trading performance.
Obtaining a commercial property loan can be a daunting process, as it involves several key influencing factors and important steps. Understanding the different aspects that influence your loan terms and eligibility will not only help you make an informed decision but also provide you with context to negotiate better terms with borrowers.
Should you require help with your commercial loan, Lendingpot’s expert consultants are always ready to help. With Lendingpot, your commercial property loan application becomes ever more convenient, as there are more than 50 lending partners available. It’s easy. Sign up using your Myinfo business via Singpass login, list your financing needs and receive offers from our partners, which you can compare effortlessly on our platform. Let us help you achieve your business goals.
Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.
