(F) commercial property loans, showing shophouses along Boat Quay

Should you buy a commercial property using personal or company name?

This is a common question we get asked by clients looking for a commercial property loan.  They often set up an investment-holding company to acquire a commercial or industrial B1 property unit in Singapore.  What are the considerations for doing that as opposed to buying it in your personal name?  We will discuss all that in this article.

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The best way to present the arguments is to stack them up for easy comparison.  First, a quick lowdown on taxes, LTV (loan-to-value) as well as TDSR (total debt servicing ratio) you need to know for commercial and industrial property loan and purchases.   

There is no ABSD (additional buyer’s stamp duty) for commercial properties in Singapore.  ABSD is only for residential.  However, with effect from 15 Feb 2023 this year, the BSD (buyer’s stamp duty) has been raised across the board even for non-residential properties where the top tier has been raised to 5% (instead of 3% previously) for valuation in excess of $1.5m.  For valuation in excess of $1m the rate is 4%.

There is also seller’s stamp duty levied on industrial property – a highly speculative segment due to its yield, liquidity and often smaller ticket size.

Commercial and industrial properties generally still get up to 80% financing (LTV or loan-to-value), even 90% in some cases (more for operating companies).  If you are buying in your own name, the number of residential property mortgages you already owed does not affect the LTV limits on commercial property loan.

middle-aged homeowner thinking about gear up term loan

Pros and cons: Buying under personal vs. company name

With this knowledge, now let’s take a look at the pros and cons of buying under personal name versus buying under a company:

If seller is a GST-registered company, buyer needs to pay the GST as a sunk cost.Buyer still pays the GST but may volunteer for GST-registration and claim back as pre-registration GST input tax (within 6 months). This expands the options for purchase often leading to a better transacted price. 
Commercial property loan will show up as a debt liability in your credit bureau and must be factored in TDSR calculations This will crimp your ability to borrow for future residential purchases.  The borrower is the company which is a separate legal entity.  Hence, the loan does not show up automatically in credit bureau under your personal name (unless of course you apply to the same bank).
Interest rateThere are fewer banks lending to individuals buying commercial real estate.  In general, the rates are also higher than banks lending to companies.   There is a whole plethora of business/SME banking operations catering to and competing for business in this space, leading to lower rates for both fixed and floating rate commercial property loans. 
Industrial B1 propertiesMany banks do not lend to individuals for the purchase of industrial properties.All banks will extend the same package be it for commercial or industrial units when buying under a company. 
(after purchase) 
Not much.  There is no difference buying commercial versus a residential property other than it attracts a higher legal fee. After completion, you will service the loan under your personal name as an individual just like you would for residential properties.For a private limited company, there are requirements under the Companies Act where you will need to file simple accounts & corporate tax (even for investment-holding company) every year. If you are GST-registered, you will have to file GST returns every quarter. You will also need to appoint a corporate secretarial and call and file AGM yearly. 
Sale of property
You are an individual seller under private treaty, just like a residential property. You have the added option of selling away the shares in the company via a share transfer.
Estate planningYou can still use a Simple Will as the commercial property is just an asset to be distributed in your estate. The property is owned by a separate legal entity and you have to make provisions for it in your estate planning.

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Commercial and industrial properties generally still get up to 80% financing (LTV or loan-to-value), even 90% in some cases (more for operating companies).  

As you can see, on the whole, there are more benefits of acquiring a commercial property under a company rather than in your individual name.  The question you will then ask is – can anyone set up a new private limited company in Singapore and get financing from day one of incorporation since the company has no financials?  

Operating vs investment-holding companies.

The answer is yes.  And no, you do not need to start a business in order to do that.  You set it up, not as an operating company with a core business, but as an investment-holding company (IHC).  In short, that’s the business of the company which is to hold the title to the property and collect rents to pay off the monthly repayments.  You will register the IHC under the SICC code 64202 – Other Holding Companies.

Since there is no financials or operating business, amount of loan to be extended to an investment-holding company will be assessed solely on the borrowing capacity of the company director as an individual. Application of TDSR rules is mandatory.  TDSR can only be exempted if this is a company with an operating business which will then accord it with more favourable commercial property loan rates.  In general, banks in Singapore will charge 0.20% higher in interest rates for borrowing as an investment-holding company versus that of an operating company.

commercial property buildings in Singapore CBD, banks

Still, if you have good personal income and you are not highly-geared for your residential properties, making use of your personal income to get financing through an IHC as a separate legal entity instead of your own name has many benefits.  First, even though you will be called upon to give a director’s guarantee on the loan, this does not quite show up in the credit bureau records under your own name otherwise it will crimp your personal borrowing limit.  Next, you can register the investment-holding company as an GST-agent within 6 months to claim back the gst paid as a buyer (subject to approval from IRAS).  Something which you can’t do as an individual buyer.  In other words, your purchase options are limited buying as an individual as there many strata commercial units for sale where the sellers are gst-registered.

Last but not least, as summarized in our table above, the benefits are many when it comes to the loan packages and interest rate.  This is especially true if you have keen interest to invest in industrial B1 units where there are more opportunities for principal upside and yield.  Most banks do not lend to individual purchases for industrial units. 

However, the pet peeve for buying under a company rather than as an individual has got to be all the paperwork and regulatory compliance you will need to fulfill once you are made a director of a Singapore registered private limited company.  A director has got fiduciary duties to “take good care” of the interests of the company and to ensure the company files its taxes, gst returns, AGM, etc. accurately and on time, failing which there will be penalties.

There will be some learning curve no doubt but the time and effort put in will be well worth after all it’s all part of the work involved to become a successful commercial property investor.  For those who are willing to pay some fees, there are professional accountants and tax agents who can assist with all those paperwork and compliance issues.  Most corporate secretarial firms also provide a one-stop shop service for all your corporate services’ needs.  A rough estimate of the such administrative fees will come to a ball park of $2,500-3,000 annually which will include preparing of accounts, financials, tax agent filing fees, corporate secretarial fees, acra filing fees and so on. 

If you have good personal income and you are not highly-geared for your residential properties, making use of your personal income to get financing through an IHC as a separate legal entity instead of your own name has many benefits.  

For commercial property financing and purchase decisions , our comparison table above will provide a good snapshot of the considerations you need to mull over.

Need more advice?  We don’t just throw you a set of rates, or get different bankers to sell to you.  Not only do we help clients navigate through Singapore mortgage rates quick and fuss-free, we show you how best to position and profit from the interest rate cycle. Work with us today and you’ll also be helping to support our social cause!

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Disclaimer: MortgageWise.sg endeavours to bring the best insights and knowledge in our expert domain of mortgage planning to the market.  Still, all viewpoints expressed in our blog remain as opinions of the writer, and shall not be constituted as financial advice.  We cannot be held responsible in any way for any financial losses arising from your mortgage decisions should you choose to rely on any of our viewpoints and opinions.