With the many rounds (eight, to be exact) of property cooling measures targeted at the residential property market here in Singapore, local investors have turned to another gleam of hope in the form of commercial properties.
In Singapore, commercial properties can be bought as an individual or as a corporation (i.e. a private limited company or a limited liability partnership). So,similar to the purchase of a residential property, you’d most likely need to take on a mortgage loan to pay for the commercial property you wish to purchase. But wait, before you think you already know what determines your eligibility for a mortgage loan, let us tell you first that the factors determining commercial mortgage are vastly different from that of a residential mortgage loan.
These are some of the most important aspects you’d need to take note of when shopping for a commercial mortgage loan:
- Credit worthiness
- Commercial property appraisal
- Ability to afford a large amount of down payment
- Debt Service Coverage Ratio (DSCR)
- Documents to prepare before taking up a commercial mortgage loan
Similar to getting a residential property loan, lenders will need to do a check on your credit history and score before deciding whether to give you the loan. As commercial properties are way more expensive than residential ones, the requirements determining your credit score will generally be much stricter. You’ll also need to show your proof of steady income, a list of assets on hand – in a nutshell, proof that you have the ability to shoulder the monthly repayments without overstretching and putting too much of a financial burden on yourself.
Commercial property appraisal
As the title suggests, this appraisal is done to determine the market value of the commercial property in question, and the land it resides on. Other factors considered during this appraisal include the type of commercial property, the size, human and traffic flow, and the state of the commercial property at the time of purchase.
Ability to afford a large amount of down payment
Not unless you are filthy rich, chances are the cost of a commercial property will not be cheap change in your pockets. Not being able to use the money from your Central Provident Fund (CPF), like how you can when buying a residential property, means the initial down payment for the intended commercial property needs to be wholly paid in cash (the amount can go up to 30-45% of the commercial property’s value).
Debt Service Coverage Ratio (DSCR)
DSCR refers to the amount of cash flow available to service the loan, which includes the interest and principal amount, versus the amount of the monthly repayments.
In the case of commercial mortgage loans, the amount of cash flow is usually the sum of money the property generates monthly from rent or sales. Ideally, of course, revenue from the commercial property loan needs to be higher than the monthly repayment amount so that you’d be able to reasonably service your loan.
Documents to prepare before taking up a commercial mortgage loan
Such documents can include, but is not limited to:
- A statement of income and expense for the commercial property
- Profiles of all the intended owners of the commercial property
- Appraisal report of the commercial property
- Blueprints or plans, if any, for the intended use of the commercial property.
To find a commercial mortgage most suited for you or your business needs, contact Loansupermart today!