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I’ve already written a complete article about how you can buy residential property in Malaysia as a foreigner.
Buying commercial property is less spoken about, especially in the media, but it can bring you great yields.
The regulations differ a bit from buying residential property, there are also some key considerations you need to understand before buying, for example the importance of location.
In this article, I explain how it works when buying commercial property in Malaysia, one of the most developed countries in Southeast Asia.
Can foreigners buy commercial property in Malaysia?
Malaysia is famous for being one of the most foreign friendly countries when it comes to buying property in Asia.
You have no particular restrictions to buy residential property and commercial property, you only need to deal with some minimum investment requirements, there are also some land types that are reserved for Bumiputera only.
When it comes to commercial property, the minimum investment doesn’t apply to the whole of the country whatsoever, but in places where the buying pressure is slightly higher, like in Kuala Lumpur.
Even if there’s Bumiputera reserved land, you have a number of other land types available.
What kind of commercial property can I buy?
As explained in my article about buying commercial property in Hong Kong, you can normally buy commercial property in any of the following categories:
Let’s have a look at each one of them.
Buying office space
You have two different options when buying an office: Going for a strata-titled property or a property with an individual title. The first option is generally a bit cheaper.
You can find a number of interesting objects in places like KL, a city that continues to expand and grow economically. Being a top tier city worldwide, prices are still significantly lower, something we’ve seen for residential property as well.
Office 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 want 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
Interesting areas in Kuala Lumpur
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)
Johor Bahru also grows fast and will be increasingly interesting. Both KL and Johor Bahru will be directly connected with Singapore within a short future. Just keep in mind that prices might fall, as there’s been an outspoken oversupply, especially in Johor.
Buying retail property
Buying a retail property is significantly different compared to buying residential property. The same as it goes with office spaces, retail property is highly relying 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 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.
Buying industrial property
Buying industrial property has become a new trend in Malaysia, especially among wealthier investors. There a numbers of reasons:
a. Industrial activity is increasing. With the weak ringgit, the demand for exports increase. The local population will also increase much the coming decades, driving up the demand for local products
b. The competition for industrial property is lower, as prices are generally higher
c. Tenants are often serious and determined to lease industrial property for a longer time period. It’s not strange, as there’s not a small amount of time, money and work needed to set up the facilities and inventories
d. Industrial property is scare in comparison with other property types
The importance of location
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, in order 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 loan when buying commercial property
It’s possible to get a loan for commercial property, but the requirements and down payments are generally tougher. The scrutiny is more thorough and will highly impact the bank’s decision whether to give you a loan or not.
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. The following steps are included when applying for a loan as a foreigner:
Do your research and find a handful of banks who are willing to offer you a loan. Compare the different options and what suits you best (including repayment period, interest rates, just to mention a few).
Process when applying for commercial property loan in Malaysia
a. Prepare the documents needed, usually involving proof of identity (passport), proof of your residential and legal status in Malaysia, financial proofs and more
b. 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
c. Find a solicitor and an agent, to help you through the conveyancing process
d. 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
e. Continue the payment of the instalments and be prepared to pay an additional 7-10% of the sales amount before signing the Sales & Purchasing Agreement (SPA)
f. 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.
Some 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 it goes with residential property, you need to pay a number of taxes when buying, holding or selling commercial property. The taxes are very similar, even if the rates might differ. Below I’ve listed property taxes you need to pay.
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%.
GST (Goods and Services Tax)
a. You have more than 2 commercial properties
b. You have more than one acre of land
c. The market value of your properties exceed RM 2 million (around USD 500.000)
Your taxable supply 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 residential property. The assessment tax is similar to property tax and paid annually. The rate is 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%
Where can I find commercial property?
You have a number of real estate agencies and listing sites to choose among if you want to buy commercial property. Some of the most popular listing sites include:
You have a number of advantages when buying commercial property. 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 and upcomers like Ipoh and Kota Kinabalu, where commercial activity increases steadily.
If you want to know more about buying commercial property in Malaysia, I recommend you to read the whole article.
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