Are you planning to buy a property for investment purpose? With so many available housing schemes in Malaysia, such as the Rumah Mampu Milik Scheme, getting a house is no longer a far fetched dream. Many people are torn between investing in commercial property or residential property. Do remember to also invest in mortgage assurance such as the MRTA if you a buying a property. This guide will list down the advantages and disadvantages of investing in a commercial property in Malaysia.
- 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.
- 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.
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.
- Profitable market
The best reason to invest in commercial property over residential property is the higher income potential. 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%.
- 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. In addition, the interest rate of bank loan for commercial property is typically higher as compared to residential home loan. 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.
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.