When it comes to investing in *commercial or industrial property in Singapore, loan tenure is an important factor to consider. This is because it determines the amount of your monthly installments, which can have a significant impact on your cash flow management. In general, with the same amount of loan principal, a longer loan tenure means lower monthly installments, while a shorter loan tenure means higher installments.
*In Singapore context, commercial property always refers to shophouses, offices, shop units (strata title type), HDB shop & standalone commercial buildings; industrial property type includes B1, B2 industry property, warehouses & JTC.
There are several factors that banks consider when determining the mortgage tenure for commercial and industrial properties. These include:
Balance property tenure.
Most residential properties in Singapore come with longer tenure, either leasehold or freehold. However, commercial and industrial properties tend to have shorter tenure. It is important for investors to be aware of this when planning their investment, as it can impact the loan tenure that a bank is willing to offer. For example, some industrial properties or HDB shops may have a balance tenure of less than 20 years. In such cases, the bank may only be willing to lend for a period of 10-15 years, even if the borrower or guarantor is young. This is because banks generally have a policy of not financing properties with less than 10 years of balance tenure.
Maximum mortgage tenure by guarantor or borrower age
When seeking a mortgage for a commercial or industrial property, you may hold the property personally or through a company. In either case, you will be required to become a personal guarantor for the mortgage. The bank will then determine the maximum mortgage tenure based on the age of the guarantor. Some banks may allow a mortgage tenure to extend until the age of 70 or 75, while others may limit it to 30-35 years. However, as mentioned above, the bank will also consider the balance property tenure when determining the mortgage tenure.
The “whichever is lower” rule
Balance property tenure is a hard criterion for determining the loan tenure, and banks will not bend their approval criteria. In most cases, for leasehold properties with short balance tenure, the bank will set the loan tenure limit before considering the borrower or guarantor’s age. On the other hand, if the borrower or guarantor is over the age of 60, the maximum loan tenure may be extended until the age of 70 or 75, depending on the bank. For example, if a borrower is 68 years old and purchases an HDB shophouse with a balance leasehold of 15 years, the bank may only offer a loan tenure of 7 years, based on the balance property tenure.
Different banks offer different options
It is common for different banks to have different policies and criteria when it comes to mortgage tenure. This means that investors may need to shop around to find the best option for their needs. It is important to consider both the interest rate and the loan tenure, as well as how these factors will impact your cash flow. For example, if you have tight cash flow and the current rental income is not sufficient to cover the installments, you may opt for a higher interest rate with a longer loan tenure. However, if you have no cash flow issues, it may be more beneficial to choose a lower interest rate with a shorter loan tenure.
In conclusion, obtaining a mortgage for a commercial or industrial property in Singapore involves considering a range of factors, including balance property tenure, borrower or guarantor age, and the policies of different banks. By understanding these factors and seeking the advice of a professional, investors can make informed decisions and effectively plan their investment strategy.
