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Your business questions answered here

SME Clinic Q&A

SME Clinic Mortgage – to rent or purchase business premises

Q   I run a company in the electrical engineering industry, and for many years have been renting an industrial space in Ang Mo Kio.

In recent years, I have considered investing and buying my own place as I did some calculations and realised that the monthly instalments would roughly be the same as the rental that I am paying now.

However, interest rates have gone up and I am naturally concerned about how that will affect the affordability should I buy my own property.

Also, what other factors do I need to consider other than interest rates?

A   There are other factors to consider besides the obvious affordability such as the initial capital outlay (down-payment), the location, the amenities and the expected length of stay.

Banks typically often lend up to 80 per cent loan-to-valuation, and the 20 per cent or more initial down payment has to be in cash.

You should weigh the opportunity cost involved – in the sense that the amount you have to use as down payment for this property should not be a sizable sum that may impede the growth of your company by restricting your available cash flow.

It should also be noted that the property’s connectivity to nearby amenities and parking facilities can have a positive impact towards your employees and business associates.

These are ultimately intangible benefits that could positively affect your business in the long run.

Additionally, before committing to buying a property, the length of stay should be a factor in your consideration.

From a purely monetary standpoint, the longer the stay in the building, the more cost-advantageous it is for your business as a whole.

 Mr Ian Teo, Head of Business Banking, Standard Chartered Bank (Singapore).

Published in The Straits Times on 23 February 2016

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