Understanding Commercial Property Loans And How To Get That Loan
Previously covered in the PropertyGuru property buying guide were how to plan your property buying budget, how to select the right property, and what are the documents involved in property buying.
Following up, this guide then teaches property buyers how to purchase a commercial property.
Purchasing a commercial property is always intimidating for first timers. It is however quite similar to purchasing a residential property, albeit with different tiers and rates.
Below are a couple of the main differences between purchasing a commercial and residential property.
1. Maximum Loan
While property purchasers are able to get a maximum loan of 90% from the banks for residential properties, the maximum loan that can be obtained for commercial properties are only 85% under personal name.
2. Loan-To-Value Ratio
When it comes to residential properties, the maximum loan a property purchaser can get is 90% – but only for their first 2 residential properties.
The maximum loan that can be obtained for their third property thereafter is only 70%.
Commercial properties however do not have the same restrictions.
A commercial property buyer can continue to get between 80% – 85% loan margin for their commercial property purchases without limit, as of Q3 2019.
Commercial Property Loans
The commercial property loan is applicable to only commercial properties. The complete list of properties that can be financed by a commercial property loan is as below:
- Retail shop lot / Shop house
- SoVo / SoFo units
- Commercial land
- Agricultural land
- May include SoHo units and Serviced Apartments, depending on the bank’s internal policies
Due to the nature of SoHo units which are the only developments that can have Commercial status but enjoys HDA protection, there has been confusion as to whether SoHo developments should be financed under a Commercial loan or Residential loan.
Commercial Loans From Banks
Different banks have different criteria when it comes to commercial property loans, and some banks are more stringent than others when it comes to doling out the loans.
Selected banks will also only finance selected types of commercial properties, such as the ground floor of shop lots or retail space within shopping malls only.
Below are some of the considerations that banks take into account when providing loans to commercial property buyers:
- Commercial property type
- Commercial land
- Agriculture land
- The type of unit if it is situated within a mixed development
- Total number of floors within the building
- The floor the property is located on
Sdn Bhd Company
A Sdn Bhd is a company that comprises of 2 individuals or more.
Individuals who run a Sdn Bhd company will not only need to fill up different income tax forms, they will also need to provide different documents when purchasing a property under their personal name.
Purchasing a property under the company will require different documents.
- Form 24 & 49
- Latest Profit & Loss statement
- Memorandum of Article
- Company Profile
- Form 9
- 12 Months Bank Statement
- Latest Audited Report
For those who are running a business under Sole Proprietorship or Partnership – a different form of company – they will need to provide the additional documents below:
- Form A and Form D
- Name Card
For more on purchasing a commercial development within Malaysia whether as a foreigner or local, visit the Loan Documents page for details.
Getting Familiar With The Property Terms
The steps to obtaining a commercial loan is almost the same as obtaining a residential property loan.
The applicant will first need to submit their loan application to their desired banks; preferably the banks with the best interest rates; and await their Letter of Offer.
Obtaining the Letter of Offer will typically take at least a week.
Upon receiving the Letter of Offer, purchasers will need to be familiar with the below terms:
1. Type Of Loan
The loans that are available for commercial properties differ from bank to bank.
The basis of commercial property loans are however similar to residential property loans, with fixed interest rates or flexi interest rates.
For example, CIMB has several types of commercial property loans such as BizFlexi plan and BizFlexi Smart plan as of Oct 2019.
The BizFlexi plan offers flexible payment plans for commercial properties, while the BizFlexi Smart plan offers the flexibility of prepayments which can help to shorten the loan tenure or save on interest rate charges.
2. Amount Of Loan
Once the Letter of Offer is received, purchasers should check the loan amount to find out how much the bank is willing to finance them for.
As stated above, the maximum loan amount for a commercial property as of Q3 2019 is 85% of the property’s price.
3. Purpose Of Loan
Also stated within the Letter of Offer is the purpose of the loan, which in the commercial property context will indicate what the loan is being provided for.
4. Description Of Property
The Letter of Offer will also have a description of the property that the purchaser is buying. In this case, it will be whether the commercial property is a shop lot, retail unit, factory, or so forth.
The details will be stated clearly, in terms of size, land area and et cetera.
The maximum duration for repaying a commercial property loan also differs from residential property loans.
While the latter enjoys a maximum loan tenure of 35 years, the former has a maximum tenure of only 25 years. The number of years will be stated within the Letter of Offer.
6. Processing/Set Up Fee
Similar to obtaining a residential property loan, a commercial property loan also requires a processing or set up fee. The charges will be stated within the Letter of Offer.
The amount is not significantly big, with UOB’s processing fee for their Intelligent Retail Loan being RM200 as of Oct 2019.
7. Monthly Service Charge
Another fee that borrowers will need to bear are the monthly service charges. These charges are also stated within the Letter of Offer.
The charges are usually minimal, with CIMB charging only RM10 for their Flexi Vacant Land Financing loan as of Oct 2019.
8. Prevailing Interest And Repayment
Stated clearly in the Letter of Offer will be the repayment schedule and the interest rates that the customer will have to pay.
In the case that there are late payments, the bank is allowed to vary the interest rates payment.
"Upon your default in making payment for any monthly interest due pending the commencement of instalment or default in the payment of any monthly instalment due, the Bank shall be entitled to vary the interest rate for the facility to BLR + (the rate as in letter of offer) or to such rate as may be prescribed at the Bank’s absolute discretion upon giving you adequate prior notice"
Calculated based on the loan amount, the installments – which are the monthly repayments to the bank – will be stated within the Letter of Offer.
10. Security Documents
The security documents that can be required by the bank for a commercial property loan may include any documents pertaining to the security of the loan and banking facilities.
It may also include the Letter of Offer, and the agreement entered into between the bank and any security party.
A prepayment is when the borrower makes an excess payment. Depending on the type of loan that they are taking, the interest rate can either be lessened, have no effect at all, or have the loan settled early.
12. MRTA/Fire Insurance
Herein lies another difference between residential property loans and commercial property loans.
While it is not necessary for a residential property to have fire insurance, it is compulsory for commercial properties.
It is possible for the banks to bundle the cost of the fire insurance into the loan as well if the borrower so desires.
The above terms are among some of the most commonly used terms in a Letter of Offer.
They are also the ones that a property buyer has to pay attention to when going through the terms and conditions.
There is a separate guide for residential property buyers, and the next guide will walk buyers through the signing of the legal documents.
For more guides on property buying, you can visit the following pages:
- The complete guide to purchasing a new, subsale or commercial property in Malaysia
- Finding the best property for investment in Malaysia – New, Subsale or Commercial
- Signing the Letter of Offer, Sales & Purchase (S&P) and Loan Agreement
- The property buying process for subsale, commercial and new developments
To learn about property titles, payment schedules and loan documents, visit our other guides: