Some of the contents of this article were contributed by Chloe from VC Estate.
Have you ever encountered an article discussing “Residential and Commercial Titles” and found yourself pondering its meaning?
I know, I’ve been in that situation too. However, now I can finally share to you how these two differentiate between one another and in the most simple way possible.
Residential vs Commercial Titles: Explained
1. Residential vs Commercial Title
Definition
Residential Title – Developments for living purposes like bungalows, semi-detached (semi-Ds), terrace houses, townhouses, apartments, flats, and condominiums.
Commercial Title – Developments for business purposes like office lots, shop lots, hotels, and mixed development falls under a commercial title.
Did you know? You can be in a serviced apartment (residential title), make a business in your apartment and it will be called a commercial title?
Yes you heard that right!
Developers have created a new real estate trend where they sell residences for customers that want to work from home while being in a commercial title. This makes the developments more appealing.
There are 3 categories in a serviced apartment, let’s break it down together shall we?
SoHo – Small Office, Home Office
Example: If you are a newlywed or a couple that is planning on starting a business together at home, SoHo is the perfect home for you as it can become your home + office.
SoFo – Small Office, Flexible Office
Example: If you want a space that provides a removable wall inside, this is your ideal home! You are free to customize your own home be it for living or working.
SoVo – Small Office, Virtual Office
Example: If you are a start-up business that is solely looking for a home with more office equipments, SoVo is the one for you! Heads up, these units are exclusively for commercial use only and you can’t renovate them.
2. Difference Between Residential and Commercial Titles
Utilities
Residential title: The properties tend to have cheaper utilities and taxes bills compared to commercial title development.
Commercial title: The properties have an increase of 2.5 times (30%-50%) more on their utilities and taxes bills compared to residential title developments.
This also includes serviced apartments that are considered as commercial titles.
Loan Margins and Financing
Residential title: For residences, you can purchase a property using 90% – 100% loan from the bank.
However, you would need to have a credit score of over 720 or a monthly income of at least RM6,000 (for a RM500k house) to get a home with this much loan.
Commercial title: The first two properties that you purchase can go with a 85% loan. However, the third property will only be eligible for 70% loan.
For serviced apartments, because they are under commercial title, consumers can purchase these properties with a loan of up to 80% from the bank alongside a down-payment of 20%.
Legal and Statutory Protection
Residential title: Properties under residential titles tend to have fewer legal complexities and do not require much agreements to it. This makes the process more straightforward for buyers and sellers.
For residential titles under the Housing Developers (Control and Licensing) Act 1966 (HDA), you can solve buyer-related problems through the Homebuyer’s Tribunal.
Also, properties under the HDA need to have running water and electricity before they are considered to be ready for possession.
Commercial title: Properties under commercial titles on the other hand has more legal complexities like permit and lease agreements.
Unlike residential titles, if you have any problems regarding your commercial property, you can only seek remedy in court which can be very expensive because of the lawyer fees.
For commercial properties, you can handover for vacant possession even if the property is not ready for occupation and is waiting for the certificate of completion and compliance (CCC).
3. Can I Change From Commercial to Residential Title?
Answer: Yes! You can change the title but ONLY if you want to use the property for another use other than the original title.
Did you know? Changing your title comes with a price. You will need to pay a premium to the Land Office when you’re applying for a title conversion.
Also, your TNB tariff will also change when you change from commercial to residential title (cheaper of course). But on top of that, you need to register at myTNB portal or myTNB app and pay RM10 of duty stamp which will be charged on your next upcoming bill.
4. Should you invest in residential or commercial property?
The question in mind now is, “Is it better to invest in residential or commercial property?”
Chloe from VC Estate breaks down the costs of buying a residential vs commercial property, highlighting the pros and cons for a first property:
In sum, investing in commercial property is more expensive than a residential property.
If you have money to spare, you can invest in commercial properties and turn it into an Airbnb (which is what most investors do to get returns).
5. Conclusion
Now that you know the difference between residential and commercial titles, you can now decide on you dream home or business! On top of that, our IQI agents can also help you search for the best homes in Malaysia.
VC Estate, founded by RENs Vincent and Chloe, specializes in real estate, marketing, and digital creation. With 1.3k YouTube subscribers and 4.5k Facebook followers, they share expert property tips and insights on their platforms. They are also active on Instagram.
IQI utilizes technology to aid real estate agents, offering training for ongoing learning and business improvement. Join IQI today!
Continue reading:
2. Investing in Commercial Real Estate: 3 Advantages and Drawbacks
3. The Best Time To Rent Out Your Property is Now: Key Highlights From IQI’s Q4 2023 Rental Report
