When evaluating industrial property investment in Singapore, businesses must consider whether market conditions are favorable. One essential factor to assess is whether the monthly mortgage instalment is lower than the monthly rental rate. If it is, investing in industrial property may provide long-term cost savings and asset appreciation. However, this decision is not just about comparing mortgage payments and rent; understanding the total cost of ownership is equally important.
1. The Key Indicator: Mortgage Instalment vs. Rental Income
A market is likely to favor industrial property investment when the monthly mortgage instalment is lower than or comparable to the monthly rental rate. This presents an opportunity for businesses to:
• Save on rising rental expenses.
• Build equity in a valuable asset over time.
• Enjoy fixed repayment costs with a mortgage.
However, businesses must go beyond the mortgage comparison and account for the total cost of owning a property, which includes maintenance fees and property tax.
2. The Hidden Costs of Owning an Industrial Property
A. Maintenance Fees
Owning an industrial property means you are responsible for ongoing maintenance costs. These include:
• Repairs and upkeep: Regular repairs to ensure the property is functional and compliant with building codes.
• Service charges: If the property is part of a multi-owner development, shared areas such as lifts, security, and facilities often come with monthly maintenance fees.
Example: Maintenance fees for industrial properties in Singapore typically range from $0.10 to $0.30 per square foot per month, depending on the property type and amenities.
B. Property Tax
In Singapore, property tax is based on the Annual Value (AV) of the property, which is determined by its estimated market rental value.
• Non-owner-occupied industrial properties are taxed at a flat rate of 10% of the AV.
• For example, if the AV of the property is $50,000 per year, the annual property tax would be $5,000.
Together, these costs can add significantly to the total cost of owning an industrial property. Therefore, it’s important to factor them in when comparing the financial viability of buying versus renting.
3. How to Evaluate the Market
A. Compare Total Monthly Costs vs. Rental Income
To determine if buying is a better option, calculate the total monthly cost of ownership:
Monthly Cost of Ownership = Mortgage Instalment + Maintenance Fees + (Property Tax ÷ 12)
Compare this with the monthly rental cost of a similar industrial property. If the total monthly cost of ownership is lower, buying may be a more cost-effective option.
B. Interest Rates and Loan Tenure
Evaluate current interest rates and loan tenure options. Lower interest rates and longer loan tenures reduce monthly mortgage repayments, making ownership more favorable.
C. Flexibility and Business Needs
If your business has stable operations and long-term plans for the property, buying may be advantageous. However, if flexibility is crucial, renting might be a better fit to avoid locking capital into real estate.
4. When Renting is a Better Option
Renting may be more practical in the following scenarios:
• High Initial Costs: If purchasing requires a large down payment and additional capital for stamp duties and renovations.
• Shorter-Term Needs: Businesses with short-term leases or uncertain growth plans may prefer renting to maintain flexibility.
• High Monthly Ownership Costs: When the total monthly cost of owning exceeds the rental rate, renting allows businesses to allocate funds toward growth or operations.
5. Other Market Indicators to Watch
Beyond comparing ownership and rental costs, monitor these key factors:
• Occupancy Rates: High occupancy rates indicate strong demand, driving up rents and making buying more attractive.
• Government Policies: Understand leasehold durations and zoning restrictions for industrial properties. These can affect the property’s value and usability.
• Economic Trends: A growing industrial sector often signals favorable market conditions for property investment.
6. Final Thoughts: Balancing Costs and Priorities
Investing in industrial property is a major decision that involves more than just comparing mortgage instalments and rental rates. The total cost of ownership—including maintenance fees and property tax—should be carefully calculated.
If the monthly cost of owning is lower than the rental rate and your business has the capital to invest, purchasing an industrial property may be a wise choice. However, if the costs or market conditions don’t align with your business needs, renting might be the better option.
For more expert advice and detailed market insights, visit IndustrialGuru.sg. Let us help you navigate the industrial property market and help you better manage your industrial properties so you can free your time and focus on things that matter most to you!