Should you invest in commercial or residential property?

With so many schemes available such as PR1MA, Skim Rumah Pertamaku and so on, owning a house is not too difficult. Are you planning to buy a property in Malaysia but cannot decide if commercial property or residential property is a good investment plan? There are some people yelling “melupuskan asset di bawah akta cukai keuntungan”. Before you buy any property for investment, make sure you fully understand the RPGT in Malaysia.

 

This article will list down the advantages and disadvantages of investing in a commercial property in Malaysia.

 

  1. Risks and yields
  • Commercial property

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, only the gain in revenue will outweigh the gain in cost.

 

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).

 

  • Residential property

As for residential property, it is generally a low risk investment. They cost much cheaper than commercial property and getting a bank loan is comparatively easier as compared to getting a bank loan for commercial property. Hence, it is considered affordable. The price of residential property would normally take between 7 years to 10 years, which has a longer period as compared to commercial property.

 

  1. Rental properties

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. Furthermore, the increase of rental yields per year is more significant for commercial property as compared to residential property.

 

  1. Exit strategy

Whether you are buying a commercial property or a residential property, if your purpose of buying it is for investment purpose, then the only aim is to rent your property out and earn from the rental. However, you could also plan for future resale or property flipping as a lucrative strategy as well. Residential property are generally much easier to resell as long as you manage to find someone who wants to buy the property and as long as it is located in a nice area with good house condition. As for commercial property, it is much harder and complicated to resale as it is much more expensive as compared to residential property.

 

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. choice that you have made. After all, buying property involves a huge sum of money. Plan carefully to avoid getting into financial problems.

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