Can Foreigners Buy Commercial Property in Malaysia? Rules, Taxes & Cashflow

Foreign investors pour into Malaysian residential condos while largely ignoring commercial property. This is a mistake. Commercial property in Malaysia operates under a different — and in many ways more favourable — regulatory framework for foreigners. Lower minimum price thresholds in some states. No state consent requirement in certain jurisdictions. Higher rental yields. And a tax advantage most residential investors never think about: capital allowance on fittings.

The trade-off is real. Shorter loan tenures, higher utility costs for commercial-titled units, and no Housing Development Act protection. But once you run the actual cashflow numbers side by side, commercial property deserves a place in the conversation that it rarely gets.

Commercial vs Residential: The Rules Side by Side

The single biggest misconception is that foreign ownership rules are identical for commercial and residential property. They are not. Here is a direct comparison:

The higher yield on commercial property is not theoretical. NAPIC data consistently shows commercial property averaging 1-2 percentage points higher gross yield than residential across most Malaysian states. In KL's commercial districts, shophouses and retail lots frequently achieve 5-7% gross yield while condominiums in the same area sit at 3-4%.

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Types of Commercial Property Available to Foreigners

Not all commercial property is the same. The categories, risks, and returns differ substantially.

Shophouses

Two, three, or four-storey buildings with ground-floor retail and upper-floor office or residential use. These are the workhorses of Malaysian commercial property. Typical shophouse investments in KL, Penang, and Johor range from RM1M to RM5M. Ground-floor rental is the primary income driver; upper floors add supplementary yield.

Advantages: Strong rental demand, dual-income potential (ground floor retail + upper floor office), limited supply in mature commercial areas.

Risks: Tenant turnover in retail can be high. Location dependency is extreme — a shophouse one street back from the main road can rent for 40% less.

Retail Lots

Individual units within shopping complexes or mixed-use developments. These are strata-titled commercial units, similar in structure to condo units but on a commercial title.

Advantages: Lower entry price than whole shophouses. Strata management handles common area maintenance.

Risks: Retail vacancy rates in Malaysia have been elevated since 2020. Mall-based retail lots are particularly vulnerable to e-commerce displacement.

Office Units

Strata-titled office units in commercial buildings. Entry prices can be competitive — RM500K-RM1.5M for smaller units in secondary locations.

Advantages: Long lease terms (3-5 years typical). Corporate tenants tend to be more stable.

Risks: Work-from-home trends have increased office vacancy nationally. KL's office vacancy rate has hovered around 25-30% in recent years. Oversupply is a structural problem.

Industrial Property

Factories, warehouses, and logistics facilities. These typically require higher capital outlay (RM3M+) and are less accessible to individual foreign investors. However, light industrial units in established industrial parks can start from RM1M-RM2M.

Advantages: Long-term industrial tenants. E-commerce logistics growth is a structural tailwind.

Risks: Location-specific demand. Requires understanding of local industrial ecosystem.

Commercial-Titled Serviced Apartments (SOHO, SoVo, SoFo)

This is where it gets interesting — and confusing. Some properties marketed as "condos" or "apartments" are actually built on commercial land with commercial titles. These include:

• SOHO (Small Office Home Office)
• SoVo (Small Office Versatile Office)
• SoFo (Small Office Flexible Office)

These units look like residential apartments. People live in them. But legally, they are commercial property. This distinction has several consequences:

For foreign buyers, the practical significance is this: some commercial-titled units in developments marketed as residential may fall below the residential minimum price threshold but still be purchasable because they are technically commercial. This is not a loophole — it is how the classification works. But verify with your lawyer before assuming.

The cost trade-off is real. Commercial utility tariffs mean electricity bills are 20-40% higher. Quit rent and assessment rates are higher. Over a 10-year holding period, these additional costs compound into a meaningful difference. Factor them into your cashflow model.

Financing Commercial Property as a Foreigner

Banks treat commercial property loans differently from residential.

The shorter tenure is the critical difference. A 20-year loan at the same interest rate produces a significantly higher monthly instalment than a 30-year loan. This directly impacts cashflow. A property that is cashflow-positive on a 30-year residential loan may be cashflow-negative on a 20-year commercial loan.

Banks that commonly finance foreign commercial property purchases:

• HSBC Malaysia — established foreign buyer commercial programme
• Standard Chartered — cross-border packages available
• OCBC Malaysia — competitive for Singapore-based buyers
• Maybank — selective; prefers loan amounts above RM1M
• Public Bank — case-by-case for foreign commercial buyers

Tax Treatment: The Capital Allowance Advantage

Rental income from commercial property is taxed at the same rates as residential rental income. For non-resident foreigners, that is a flat 30% on net rental income (after allowable deductions).

However, commercial property offers one tax advantage that residential does not: capital allowance on fittings and fixtures.

Under the Income Tax Act 1967, owners of commercial property can claim capital allowance on qualifying expenditure for plant, machinery, and fittings used in generating rental income. This includes:

• Air conditioning systems
• Electrical fittings and wiring
• Built-in furniture and fixtures
• Security systems
• Fire protection systems

The allowance rates are:

This means if you spend RM100,000 fitting out a commercial unit, you can deduct RM20,000 in the first year (initial allowance) and RM14,000 annually thereafter (for plant/machinery). This reduces your taxable rental income and, at a 30% non-resident tax rate, saves real money.

Residential property does not qualify for capital allowance on fittings. This is a structural tax disadvantage that residential investors accept without realising the alternative exists.

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Worked Example: RM2M Shophouse in KL vs RM2M Residential Condo

Let us compare two RM2M investments side by side. Same foreign buyer. Same capital deployed.

RM2M Shophouse in KL

RM2M Residential Condo in KL

The shophouse generates positive cashflow of RM1,380/month before tax. The condo is negative RM1,070/month. The RM100,000 additional down payment for the shophouse is repaid within six years through superior cashflow alone.

After tax (30% non-resident rate on net rental income), the shophouse investor retains a cashflow advantage. And with capital allowance on fittings, the effective tax burden is further reduced.

Sensitivity Analysis

What if the shophouse rental drops 15%?

Even with a 15% rental decline, the shophouse is approximately breakeven. The condo deepens into negative territory. The shophouse's higher yield creates a buffer that residential property at 3-4% gross yield simply does not have.

Due Diligence for Commercial Property

Commercial property due diligence requires additional checks beyond residential:

1. Zoning verification. Confirm the property is zoned for its current and intended use. A shophouse in a commercial zone is straightforward. A property in a mixed zone may have restrictions on certain commercial activities.

2. Tenancy agreements review. If buying a tenanted commercial property, review all existing tenancy agreements. Check lease duration, rental escalation clauses, tenant deposit amounts, and any break clauses.

3. Business assessment rates. Commercial assessment rates are higher than residential. Obtain the actual rates from the local council (Majlis Perbandaran or Dewan Bandaraya) — do not estimate.

4. Fire and safety compliance. Commercial properties must meet fire safety requirements under the Fire Services Act 1988. Non-compliance can result in penalties and inability to obtain business licences.

5. Strata title status. For strata-titled commercial units, verify that individual strata titles have been issued. Properties without individual titles complicate the consent process and resale.

6. Access and parking. Commercial property value is heavily influenced by access. Check loading bay access for ground-floor retail, parking allocation, and public transport proximity.

When Commercial Makes Sense — and When It Does Not

Commercial works if:

• You prioritise cashflow over capital appreciation
• You can handle a 20-25 year loan tenure (higher monthly instalments)
• You have a larger down payment available (35-40%)
• You are comfortable managing commercial tenants or engaging a property manager
• You want the capital allowance tax benefit

Residential works if:

• You prioritise capital appreciation over immediate cashflow
• You need a longer loan tenure to reduce monthly commitments
• You plan to eventually live in the property
• You want HDA protection on a new build
• You prefer the simplicity of residential tenancy management

For most foreign investors buying their first Malaysian property, a residential condo is the path of least resistance. But for second and subsequent properties — especially if the first is already cashflow-negative — a commercial unit can balance the portfolio and inject positive cashflow into the overall position.

Related resources:

• Complete guide for foreign buyers in Malaysia
• Rental income tax guide for Malaysia
• Cashflow calculator
• Stamp duty calculator

Sources

• RPGT Rates — LHDN
• Income Tax Act 1967 — Capital Allowances
• Selangor Foreign Purchaser Guidelines — Includes RM3M Commercial Threshold
• EPU Foreign Acquisition Guidelines
• Fire Services Act 1988 — Bomba Malaysia