Investors see benefits of buying as a company rather than individuals
A RISING proportion of purchases in the strata-titled office market is by companies, a new study has found.
Companies accounted for 59 per cent of strata office purchases in 2012, 66 per cent in 2013 and 70 per cent last year, the study by Cushman & Wakefield found.
So far this year, Singapore individuals have bought seven strata offices, fewer than a third of the 24 units bought by companies.
The reason could be that investors are becoming increasingly savvy and see the benefits of buying commercial properties via incorporating a company, said Ms Christine Li, research director at Cushman & Wakefield.
These benefits include easy transfer of ownership and partial tax exemptions, including exemption from the goods and services tax, she said.
However, there are downsides as well.
The income tax for companies is 17 per cent, whereas personal income tax could be lower than that, depending on a person's sources of income, said Mr Ku Swee Yong, chief executive of Century 21.
Loan conditions could possibly be more onerous as well.
Overall, transactions have declined over the years, from 1,898 strata offices sold in 2012 to 743 in 2013 and 517 last year.
This could be due to limited supply and the Total Debt Servicing Ratio (TDSR) from June 2013 affecting individual buyers, said Ms Li.
Buyers from China were the second-most active nationality among strata-titled office buyers in 2012, accounting for 22 per cent of foreign purchases, but have since become the most active, at 37 per cent in 2013 and 23 per cent last year.
"This trend could be attributed to the Additional Buyers' Stamp Duty levied on the residential property market, which caused Chinese buyers - who traditionally prefer residential units - to shift their focus to the commercial sector," said Ms Li.
The proportion of buyers from India has also increased, from 6 per cent in 2012 to 21 per cent last year, or the second most active.
"Investors from India are one of the earlier entrants in the local residential market, and many of them have made money from it... they may now be rebalancing their portfolios and branching out to other asset classes," said Ms Li.
Buyers from Malaysia and Indonesia also remained in the top five among foreign buyers in this market from 2012 to last year.
The strength of the Singapore dollar against other Asian currencies, including the ringgit, could have given added confidence to these foreign investors, she said.
Foreigners have also been purchasing more pricey units, as the median prices of strata-titled offices have risen.
The most popular quantum for foreign buyers in the seven quarters following TDSR implementation was $1 million to $1.5 million, with 32 per cent of their transactions within this range.
In comparison, the most popular quantum in the seven quarters pre-TDSR was $500,000 to $1 million, or 27 per cent of their transactions.
Median prices of strata-titled offices rose from $1,842 psf to $2,200 psf over the same period.
The strata office market still has its "niche demand", offering retail investors a way to participate in and benefit from the recent boom in the sector, Ms Li said.
Office rents rose 0.6 per cent quarter on quarter in the first quarter of this year.
The total office space per capita in Singapore is about 15 sq ft, less than that in major cities including Hong Kong at 17 sq ft and Tokyo at 19 sq ft.
"This could mean that Singapore's total office stock still has room to grow, given its status as a global financial hub," Ms Li said.