Assalamualaikum and hye readers.
Are you planning to buy a commercial property in Malaysia but cannot decide if commercial property is a good
investment plan? Real estate agents often get asked whether
a commercial or a residential property is a good investment plan. A commercial property typically refers to retail
buildings, office buildings, warehouses, industrial buildings, apartment
buildings and mixed building where it can be a mixture of retail, office or
apartment. Make sure you engage with a real estate agent that is certified with
the Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVAEA). This
guide will list down the differences between commercial
property and residential property and also the advantages and disadvantages of
investing in a commercial property in Malaysia.
1. 1- Risk and return
For residential property, there is a demand
and supply whereas for commercial property, it is much more risky in Malaysia
as compared to residential property due to the economy. With bad economy it
brings lesser and lower purchasing power. This will then lead to a lower demand
for retail shops.
2. 2- Lesser
stress for tenant management
It is common to have tenants that are from large companies or
corporations whereas the tenants for residential properties are typically
individuals. With such big companies or large corporations, you can worry less
on late rental payment as they are more reliable and tend to avoid the breaching
of tenancy agreement.
Tenants for residential properties will normally request or prefer
a fully furnished unit whereas tenants for commercial properties prefer an
unfurnished unit because they tend to refurbish and decorate the unit
accordingly. This will then save the owner a lot of furnishing and renovation
costs.
In addition, commercial tenancy will have a longer lease between 2
years and 10 years, whereas residential tenancy will turn over every 6 months
to 12 months maximum, which is considered short as compared to a commercial
tenancy. This is due to business commitment that the tenants have committed to
as they spent a huge sum in renovating the shops for business purposes, hence,
a longer lease.
Moreover, let us say your commercial units are located in a prime
area, there will automatically be tenants lining up and wanting your commercial
units. The current tenants will most likely to renew their tenancy as well.
That being said, you will be able to skip the hassle of looking for new tenants
all over again.
3. 3- Profitable
market
The best reason to invest in commercial property over residential
property is the higher income potential. Commercial property generally has
higher rental rates and higher property value as compared to residential
property. The appreciation of property value for commercial property is
generally much faster and higher as compared to residential property. Furthermore,
commercial units will have higher rental rates as compared to residential
units, especially in prime area. Commercial property will normally have an
annual return on investments between 6% and 12%. In addition, the price of commercial properties
can increase by double in a short time (3 to 6 years) as
compared to residential properties where it would normally take between 7 years
to 10 years. This however, is large depending on the area of the property.
4. 4- Financing
your purchase
Obtaining a commercial property loan is typically much harder than
obtaining a loan for residential property such as apartment units, condominium
units or houses. Banks are usually more selective when it comes to loan
application for commercial properties. Even if you manage to secure a
commercial property loan from the bank, the percentage of loan secured is much
lower as compared to the loan obtained for residential properties where it can
go as much as 90% loan financing. In addition, the interest rate of bank loan
for commercial property is typically higher as compared to residential home
loan. Therefore, do look around different banks as different banks will offer
different types of loan offers, depending on the kinds of commercial properties
that you intend to purchase.
However, do bear in mind that you will need to fork out a big
initial capital as compared to residential property for 2 reasons: commercial
properties are more expensive and lower loan financing from the bank. With
bigger initial investment spent on a residential property, you can only the
gain in revenue will outweigh the gain in cost.
In conclusion, commercial property in Malaysia can be a good
investment option as well as commercial properties can offer a more rewarding
income but with more risks. Whether or not to invest in
commercial properties in Malaysia is depending on your
property investment portfolio and how much risk you are willing to take. Make
sure you look out for factors such as the property type, location and your
economic conditions before you decide to make such investment. You certainly do
not want to end up regretting in the future because of the wrong choice that
you have made. After all, buying property involves a huge sum of money. Plan
carefully to avoid getting into financial problems.
aisyaismail
