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5 Things You Need To Know Before Buying or Leasing a Shop Space

08 Dec 2017

Tips & Advice

Tart by De Style Interior

To buy or not to buy a shop space? This is one important question business owners often ask themselves when setting up or expanding their business.

Buying or leasing a shop space both have their advantages and disadvantages. However, there are some important factors to consider before making a decision. Here, we provide some tips that will guide you before you make this big decision.

1. What is Your Objective?

Consider your objectives of using the shop space to make a wise decision. Image credit: Shutterstock

Do you want more financial control over your shop space? If so, purchasing a commercial property will achieve this objective since there is no landlord to determine your rental cost.

Beyond monthly rental costs, there is also an added level of security – you own the shop so you don’t have to worry about being asked to leave your “second home”.

After determining your objectives, factor in the vagaries of the market and unforeseen circumstances. For instance, buying a shop when the property price is down may sound like a good decision now. But in the long run, are you able to pay for the costs involved in maintaining the shop space?

Also, if you need to sell the property urgently and the property price is unfavourable, what options do you have?

2. Location is key

Your location determines the amount of human traffic and the price of your property. Image credit: Shutterstock

Your shop location affects the costs that you are going to pay. Places with high population density, high traffic areas and locations near the MRT stations and bus terminals are generally pricier.

It’s important to compare the costs between the different locations before making a decision. The Urban Redevelopment Authority regularly publishes updates on commercial property rental prices. Based on their info, the 2Q/2017 median rentals based on lease commencement show that prices can be up to $4.25 per sq ft pm higher in the Orchard Planning area (OPA) as compared to locations outside the OPA but within the Central Area, such as River Valley and Bras Basah. Think about whether it is worthwhile getting a shop space in the Orchard area or whether nearby locations will suffice.

3. Type of Space

Hanoi Vietnam Restaurant by De Style Interior

In Singapore, there are many types of shop spaces to choose from. These run the gamut from a shophouse, a store within a shopping mall or even a space in an office building.

The space you choose has implications on the cost and regulations you need to abide by. For instance, HDB shops maintenance fees are lower and range from S$170 to S$250.  But they also come with restrictions on the type of businesses permitted. Furthermore, you need to make an application with HDB if you want to renovate your commercial property. Thus, do always read up on the relevant regulations before committing to a down payment.

4. Tenure

The lease of your shop space may potentially affect your bank loan. Image credit: Shutterstock

Typically, most shop spaces have leases that come in 30, 60, 99 or 999 years. There are also some that are freehold, but they cost more than leasehold properties.

Do note that if you are choosing a lease that is 99 years and below, financial institutions may quote you a lower loan quantum if your lease is running low. This may affect the amount of capital sum you may need to fork out at the start.

5. Tax, Loans and Other Costs

There are many costs associated with buying or leasing a property. Image credit: Shutterstock

Purchasing a property means that you have to pay a 10% property tax. The Inland Revenue Authority of Singapore (IRAS) has a handy calculator to help you figure out the amount of property tax you have to pay.

Whether you are leasing or purchasing a property, it is likely that you need a mortgage loan. In Singapore, most banks provide up to 80% loan based on your property’s value. The payback period ranges from 15 to 20 years.

Beyond tax and loans, you should also factor in potential additional costs such as maintaining the upkeep and workability of the property.

How an Interior Designer Adds Value to Your Shop Space

Sushi Mentai by The Two Big Guys

Finally, regardless of whether you buy or lease a shop space, the interior design of your shop is something to invest in since it impacts your branding.

We are all familiar with Apple’s sleek modern aesthetic being seamlessly integrated into their interior design or classy wood tones of Starbucks’ upmarket interiors. This is where an interior designer comes into the picture.

“An interior designer can help you make your shop space attractive for your target audience and also design the space to attract people to enter your shop,” says Michael Ong, director of The Two Big Guys.

“If your shop space is small, the interior designer can help you to maximise your space. As for larger shops, you need an interior designer to help you to maximise your shopfront so you can get more value for your money.”

While some people prefer hiring a contractor, interior designers provide added value with their skills in design and space planning.

Stanley Tan, director of De Style Interior says: “Contractors usually follow a design. On the other hand, interior designers can develop a unique concept for your shop, advise you based on your requirements and also do space planning effectively.”

Buying or renting a commercial property is a big decision for business owners since it takes up a large chunk of your sunk cost. So, think wisely before committing to a purchase or lease!

As Singapore’s largest and most comprehensive renovation database, HomeRenoGuru offers a variety of price packages to suit your needs and more than 500 interior designers to choose from. Contact one of our designers for a consultation today!

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