Malaysia is a comparably developed country by Asian standards and has some of the most favorable foreign ownership regulations in the region. This goes for both residential and commercial real estate.
Worth mentioning is also that Malaysia’s REIT market gets increasingly popular among local and foreign investors who want to diversify their investments.
With that said, today we focus on investments in commercial real estate and if this is even available to foreigners and locals.
- Can foreigners buy commercial property in Malaysia?
- Commercial Property Types Available for Foreigners in Malaysia
- Getting a Commercial Property Loan in Malaysia
- Commercial Property Taxes
- How can I find commercial property in Malaysia?
- Best Cities in Malaysia for Commercial Property Investments
Can foreigners buy commercial property in Malaysia?
Malaysia is well-known for being one of the most foreign-friendly countries in terms of property ownership regulations.
You have no particular restrictions to buy residential property and commercial property, you only need to deal with some minimum investment requirements.
Besides, some land types are reserved for Bumiputera only.
When it comes to commercial property, the minimum investment requirements don’t apply to the whole of the country, but in places where the buying pressure is higher, like in Kuala Lumpur and Penang.
Foreigners have no issues buying office space, industrial real estate, and hotels. That’s not the case in countries like Thailand, Vietnam, and Cambodia where you have to set up a local company to buy commercial real estate.
Commercial Property Types Available for Foreigners in Malaysia
Malaysia has a diverse economy and there are plenty of options available for foreigners who want to invest in commercial property.
Let’s have a look at the most common options and what makes each interesting.
You have two options when buying office space in Malaysia: Strata-titled units or units with individual titles. The first option is generally a bit cheaper and means that you co-own common areas.
You can find many interesting objects in places like Kuala Lumpur, a city that continues to expand and with much potential in the future. Being a top tier city worldwide, prices are still surprisingly low, something we’ve seen for residential property as well.
Office space prices in the prime areas go for almost as little as 10% (!) compared to Hong Kong, rentals are also significantly cheaper.
Deciding whether to buy or lease office space depends highly on your goals. Maybe you’re an investor who simply looks for capital gains or a business owner who’s been renting for a couple of years and wants to buy.
Below I’ve included some pros & cons when buying and leasing.
Pros of buying an office instead of leasing
- You can enjoy the capital appreciation
- You can deduct costs for maintenance and taxes
- You can rent out the office space and earn rental incomes
- As mentioned, office spaces are cheap in Malaysia
- Higher rental income
- Longer lease period
Cons of buying an office instead of leasing
- Relies heavily on the economic climate
- Not very liquid
- Higher interest rates
- The problems of moving to a new office quickly, if your company outgrows the old office
Buying retail property is a different story compared to buying a residential property. The same as it goes with office spaces, retail property highly relies on the economic climate. A downturn in the economy might result in lost income, forcing you to leave.
Also, in comparison to buying a residential property, you normally want to buy in locations where there’s a large number of people in circulation. Congested areas might not necessarily be an issue, but something you normally want to avoid when buying a residential property.
The same as it goes with office spaces, there’s currently an oversupply of retail property, at least in the major cities. The growing e-commerce industry should be taken into consideration if you decide to sell retail products in physical stores.
Industrial Real Estate and Warehouses
Investing in industrial property has become increasingly popular in Malaysia, especially among wealthier investors. Some of the reasons are:
- Industrial activity is increasing. With the weak ringgit, the demand for exports increases
- The local population will also increase much the coming decades, driving up the demand for local products
- The competition for industrial property is lower, as prices are generally higher
- Tenants are often serious and determined to lease industrial property for a longer time. There’s a greater amount of time, money, and work needed to set up the facilities and inventories
- Supply of industrial property is scarce in comparison to other property types
The importance of location when choosing industrial property
The same as it goes with retail property, the location is of high importance when buying industrial property. A key consideration is to buy close to harbors or airports, to reduce hauling costs.
These costs are determined based on the distance to your premises, from the airport or harbor. The height from the floor to the ceiling and the space of the facility should also be studied well in advance.
Getting a Commercial Property Loan in Malaysia
It’s possible to get a loan for commercial property, but the requirements and down payments are generally tougher compared to residential property. There’s more scrutiny and banks have tougher requirements.
Some items that banks take into consideration before lending for commercial property include:
- What type of property you plan to buy
- Why you want to buy (business purpose)
- The location of the property
- The floor which the property is located on
Worth mentioning is that it’s significantly easier to get a home loan in case you have the so-called MM2H visa or work and reside in Malaysia.
Process when applying for commercial property loans
- Find a handful of banks that are willing to offer you a loan. Compare the different options and what suits you best (including repayment period, and interest rates)
- Prepare the documents needed, usually involving proof of identity (passport), proof of your residential and legal status in Malaysia, financial proofs, and more
- Get an approval-in-principle, which will make sure that you have your finances covered. The last thing you want to do is to bid on a property without being backed financially
- Find an agent and a solicitor, to help you through the conveyancing process
- Prepare the initial deposit, usually set to 2-3%. This will be used as evidence to the bank that you want to proceed with your purchase
- Continue the payment of the installments and be prepared to pay an additional 7-10% of the sales amount before signing the Sales & Purchasing Agreement (SPA)
- Finalize the mortgage and the remaining payments within 3 months
Commercial Property Loan Calculators
Many people seek convenience and look for so-called loan calculators online. These tools can easily calculate different rates from banks with just the click of a button.
Websites that offer this online tool include:
You can try to use the tools on each website and see what’s best for you.
Commercial Property Taxes
The same as for residential property, you need to pay real estate taxes when buying, holding, or selling commercial property.
The taxes are similar, but the rates differ from time to time. Below I’ve listed the taxes you normally need to pay when investing in Malaysia commercial property.
The stamp duty increases progressively as follows:
- RM 0 – 100.000 = 1%
- RM 100.001 – 500.000 = 2%
- > RM 500.001 = 3%
You normally need to add a legal fee as well, ranging between 0.4-1%.
The same as it goes for commercial property in Singapore, Malaysia has a so-called Goods and Services Tax (GST). You need to pay GST in case you fall under any of the below descriptions:
- You have more than 2 commercial properties
- You have more than one acre of land
- The market value of your properties exceed RM 2 million (around USD 500.000)
- Your taxable amount exceeds RM 500,000 during the actual month and the following eleven months
Quit rent is only charged to landowners once a year, but the amount is negligible and around USD 10-20 USD/year for residential property. The rate is USD 20 – 50 for commercial property.
I’ve already explained about assessment tax in my separate article about buying a residential property. The assessment tax is similar to property tax and paid annually. The rate is normally 4% for residential property and around 10% for commercial property.
Real Property Gain Tax (RPGT)
Capital gains tax is referred to as RPGT in Malaysia and differs depending on your holding period and whether you buy residential or commercial property. Your residential status will also affect the rates that apply.
RPGT increases progressively as follows for commercial property:
- If sold within 3 years: 30%
- If sold before 4 years: 20%
- If sold before 5 years: 15%
- If sold after 6 years: 5%
How can I find commercial property in Malaysia?
Before you invest in commercial real estate, you have to find a real estate agent that can help you to find a suitable unit and connect you with the buyer.
You have plenty of real estate agencies and listing sites to choose among if you want to buy commercial property in Malaysia. Some of the most popular listing sites include:
Asia Property HQ also works with leading partners that have a long experience of catering to foreign clients who are interested in acquiring property in Malaysia. Simply fill in the form at the bottom of this article and then we can help you.
Best Cities in Malaysia for Commercial Property Investments
Malaysia is the home to many industrialized and developed cities and areas, including Kuala Lumpur, Johor Bahru, Penang, Ipoh, and Klang Valley.
Kuala Lumpur is the financial heart of Malaysia and where most commercial activity is going on. Not surprisingly, it’s also growing the fastest in the country. Therefore, many investors find this place the most interesting.
Some areas you should have a look at in KL include:
- KL Sentral
- Bukit Bintang
- Mid Valley City
- Tun Razak Exchange (TRX)
That said, according to Knight Frank, the commercial property segment (including office space and retail space) will be most interesting in Klang Valley and Johor. Looking at the hotel sector, Penang and Sabah are becoming increasingly interesting.
Sabah has a cultural diversity and unique natural environment which makes it an attractive destination among travelers and holiday spenders. In 2018, as many as 3.8 million travelers visited the city.
Worth mentioning is also that Klang Valley becomes increasingly interesting for manufacturing operations and we will see more foreign direct investment here.
Negeri Sembilan and Pahang are two upcoming destinations that get more attention from commercial property investors as well.
Below you can find some commonly asked questions among investors and our replies.
Can Singapore PR own property in Malaysia?
Yes, Singapore permanent residents are not treated in a different way than other foreigners. Malaysia allows foreigners to acquire everything from office space, industrial real estate, hotels, and retail property.
What are the benefits of buying a property through a company?
Buying commercial property through a local company offers many benefits in Malaysia. First, you have the tax benefits. Corporate tax is set at a flat rate of 20%. If you exceed the 20% bracket for your income tax, you can save on taxes. Besides, there are more deductibles available.
If you are the director of an Sdn. Bhd. (Sendirian Berhad) or LLP (Limited Liability Partnership), you are not subject to the minimum investment requirements either.
Is property a good investment in Malaysia?
Malaysia is one of the easiest countries in Asia to buy a property. Here, foreigners can get hold of land, villas, apartments, and commercial property. Rental yields are still fairly high in places like Kuala Lumpur and Malaysia continues to be an attractive country for overseas investors.
The only drawback of investing here is that foreigners have to meet the local minimum investment requirements that differ by state.
You have many advantages when buying commercial property in Malaysia. Neither is the market as competitive as the residential ditto, capital appreciations and rental incomes are also generally higher.
But the market is also more volatile, relying more heavily on the economic climate. A downturn in the economy might result in difficulties to keep the property. This is something banks understand, a reason why it’s generally more difficult to get mortgages for commercial property.
You need to pay similar taxes, the only main difference is the GST, which applies to commercial property. The tax rates also differ, for example, the stamp duty.
Most commercial activity is in Kuala Lumpur, Johor Bahru, Penang, but not excluding, Melaka, Ipoh and Kota Kinabalu, where commercial activity increases steadily.