Malaysia is a developed country by Southeast Asian standards and has some of the most favorable foreign ownership regulations. Up until 1997 and before the Asian financial crisis, the economy grew by as much as 8% annually.
Foreign investors poured in with goals to profit from Malaysia’s rapid growth and thanks to its ease of doing business. Having said that, you must learn about the local market and the buying process before going into detailed planning.
In this article, we go into greater detail and review some of the most important topics when you invest in commercial real estate in Malaysia.
- 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?
- Cities to Invest in Commercial Property
Can foreigners buy commercial property in Malaysia?
Malaysia is 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 minimum investment requirements that differ between states.
Besides, some land types are reserved for Bumiputera (ethnical Malays) only.
Looking at commercial real estate, the minimum investment requirements don’t apply to the whole of the country though, but in places where the buying pressure is higher. Examples include Kuala Lumpur and Penang.
Foreigners have no issues buying office space, industrial real estate, and hotels, just to give a few examples. 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 investment options for foreigners that want to buy commercial property.
Office space comes in two different forms: As strata-titled units or units with individual titles. The first option is generally cheaper and means that you co-own common areas.
Kuala Lumpur has the most office space available, an alpha-city that continues to expand. Yet prices are still surprisingly low, something we’ve seen in the residential property market as well.
Office space prices in the prime areas cost around 10% compared to Hong Kong and rentals are significantly cheaper.
Analysts estimate that the office market will grow by around 10% until 2023 and 80% of new demand will be constructed in Kuala Lumpur. Worth mentioning is also that work-from-home (WFH) and other solutions for flexible working becomes increasingly popular.
So should you rent or buy office space?
It depends on your goals. Below I’ve included the pros & cons of buying and leasing.
Pros of buying office space
- Potential capital appreciation
- You can deduct costs for maintenance and taxes
- You can rent out the office space and earn rental incomes
- Office spaces are affordable in Malaysia
- Longer holding period
Cons of buying office space
- Relies heavily on the economic climate
- Not as liquid
- Higher interest rates
- The problems of moving to a new office quickly, if your company outgrows the old office
The same as for office space, retail property performances highly rely on the economic climate.
A downturn in the economy can result in lost income, forcing you or your tenant to leave. This is something we experienced during the pandemic when many restaurants and stores had to shut down for good.
Also, 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 for office space, 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.
Hotels & Resorts
Malaysia attracts many retirees and travelers who wish to explore its beautiful nature, unique history, and tasty cuisine.
On contrary to Vietnam where you can find one or a few popular resort destinations, Malaysia is the home to a plethora of islands and interesting cities.
Some of the most popular archipelagos and islands include Redang Island, Langkawi, Perhentian Island, Tioman Island, and Penang Island.
Malaysia has been ranked as a top 10 tourist destination in the world, as well as a top shopping destination. Adding the generous visa options, it is not strange that Malaysia’s hotel industry will thrive for years to come.
Just keep in mind that stricter regulations for hotel investments and management. Relevant licensing should be secured, including:
- Tourist Accommodation Premises License
- License to sell alcoholic beverages
- License for the use of advertisement and commercials
Industrial Real Estate & Warehouses
Investing in industrial property has become increasingly popular in Malaysia, especially among wealthy 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 for industrial real estate
The location is of high importance when buying industrial property. A key consideration is to buy units close to harbors or airports, to reduce hauling costs and times.
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.
The logistics sector will be interesting to follow in the coming years as the eCommerce industry grows rapidly and the need for warehouses and advanced logistics facilities increases.
The manufacturing of products like semiconductors and pharmaceutical products will most likely continue to be strong, driving the demand for industrial properties.
Getting a Commercial Property Loan in Malaysia
It’s possible to get a loan for commercial property, but the requirements and down payments are tougher compared to residential property. There’s more scrutiny involved as well.
Some items that banks review before granting commercial property loans include:
- The property type
- The business purpose
- The location
- The floor location
Besides, it’s significantly easier to get a home loan in case you have the so-called MM2H visa or work in Malaysia.
Process when applying for commercial property loans
- Find a handful of banks. Compare the options (including repayment period, and interest rates)
- Prepare the documents, 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
- Find a partner 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% to 1%.
The same as 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 two 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 /year for residential property. The rate is USD 20 – 50 for commercial 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%
Keep in mind that tax rates change frequently and you should check the latest government information for up-to-date data.
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.
Cities to Invest in Commercial Property
Malaysia is the home to many industrialized and developed cities and areas, including Kuala Lumpur, Johor Bahru, Malacca, Penang, and Ipoh.
Kuala Lumpur is the financial heart of Malaysia and where most commercial activity is going on. Not surprisingly, it’s also the fastest-growing. Therefore, many investors find this place the most interesting.
Some areas you should have a look at include:
- KL Sentral
- Bukit Bintang
- Mid Valley City
- Tun Razak Exchange (TRX)
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 become 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 my 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.