Besides brokering for home loans in Singapore, our team here is also adept at brokering for commercial property loans and that’s a common question we often get asked by clients. They are looking to set up an investment-holding company (IHC) to acquire and hold 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?  Let’s 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 applicable for residential.  However, with effect from 15 Feb 2023, the BSD (buyer’s stamp duty) has been revised 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 more speculative segment due to its yield, liquidity and lower quantum involved.

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

Pros and cons: Buying under personal vs. company name

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

	BUYING UNDER PERSONAL NAME	BUYING UNDER COMPANY NAME
GST	If seller is a GST-registered company, buyer needs to pay the GST which becomes 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 when shopping for a unit and often leading to a better transacted price.
TDSR	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 rate	There are fewer banks lending to individuals buying commercial real estate.  In general, the rates are also higher than banks lending to companies.	There’s 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 commercial property loans rates.
Industrial B1 properties	Many 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.
Administration (after purchase)	Not much.  There is no difference buying a commercial versus 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 how you would for a residential property.	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 secretary and file for 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 planning	You 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% LTV (loan-to-value) financing, even 90% for purchases 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.  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.  In short, the business of the company is to hold the title to the property and collect rents to pay off all the business expenses chief of which is monthly repayments.  You will register the IHC under the SICC code “64202 – Other Holding Companies”.

Since there is no financials or operating business, the amount of loan to be extended to an IHC will be assessed solely on the borrowing capacity of the company director as an individual. Application of TDSR rules is mandatory based on the aggregated income and debt of the both the director and the company.  TDSR can only be exempted if this is a company with an operating business which will then accord it with more favourable commercial 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.

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 impact your personal borrowing limit).  Next, you can register the investment-holding company as a 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 all gst-registered.

Last but not least, as you can see from the earlier comparison, the benefits are many when it comes to loan packages and interest rate.  This is especially true if you have keen interest to invest in industrial B1 units.  Most banks do not lend to individual purchasers for such 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 fulfil 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 requirements.  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. 

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

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.  

Need more personalised advice?  Not only do we help clients navigate the myriad of mortgage rates in Singapore quick and fuss-free, and get you the best home loan Singapore, we show you how to become Mortgage-Free in 6 Years!  So, be it for residential or commercial property loan. Work with us today and you’ll also be helping to support our social cause!

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Disclaimer: MortgageWise Pte Ltd is not in the business of providing financial advice nor are we licensed or regulated by MAS under the Financial Advisory Act (FAA) in Singapore. All information presented are opinions and any representations given, whether by way of example, illustration or otherwise, are purely portfolio allocation advice and not recommendations or inducements to buy, sell or hold any particular investment product or class of investment product.  All opinions are generic in nature and are not tailored to the particular circumstances of any reader.  Seek advice from a qualified financial advisor before making any investment decision.

Though every effort has been made to ensure the accuracy of the information and figures presented, we make no representations or warranties with respect to the accuracy or completeness of the contents in this blog and specifically disclaim any implied warranties or fitness for a particular purpose.  We shall not be held responsible for any financial loss or any other damages suffered whatsoever, directly or indirectly, if you choose to follow any of the advice or recommendations given in this blog.ns.