Residential Title Vs Commercial Title: How Do The Differences Affect You?

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Before deciding to buy a home, it is a must to do the necessary research and comparisons on several factors of the desired property.

For example, people most commonly look out for the location, amenities, and infrastructure. However, do you know whether the property has a residential or commercial title?

It is very important to know the differences between both, but first, let’s look at the type of titles for your property. There are several land titles for properties in Malaysia:

1) Land Title

A land title for a property is issued to an individual or entity, to state that they hold legal ownership of the land. It basically tells you what the said property can be used for.

Further breaking it down, there are three types that you need to be aware of:

1a) Master title

Given by the Land Office to the developer for an entire project once the necessary permission for the development of the land is obtained.

1b) Individual title

This title is issued for landed properties such as terrace houses, semi-Ds, and bungalows. When the developer completes a project and is ready to hand over to the respective owners, the developer needs to apply to the Land Office in order to divide up the master title.

1c) Strata title

This is for properties which comprise multi-storey buildings, also called stratified properties. The whole land of the project belongs to a single owner, and a strata title indicates that the buyer of individual units owns the said unit, as well as other shared common facilities within the development.

Fun fact: Gated-and-guarded landed properties come with a strata title too, such as townhouses, which basically offer the best of both worlds – the spaciousness and privacy of a landed home, with the exciting facilities of a high-rise development!

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2) Category Title

Under the National Land Code (NLC) Act 828, a category title is also known as “categories of land use”, where there are three distinct categories of usage.

The owners must use the land according to the respective type, and follow the exact conditions stated in the title. The three categories are:

2a) Agriculture

As the category suggests, agricultural land is used for purposes such as plantations, crop farming, livestock, and aquaculture.

The buildings that can be build on this land are only for owners and employees to stay, and should not be more than one-fifth of the total land area or two hectares, whichever is lesser.

2b) Industry

The land under this category is used for purposes of manufacturing, smelting, producing or distributing power, as well as assembling, processing, storing, transporting, or distributing goods and other commodities.

The only types of buildings allowed are factories, workshops, warehouses, docks, jetties, railways, or other buildings used for the purposes mentioned above.

2c) Building

For this category, the land should only be used for the following purposes:

• Residential

• Administrative or commercial

• Exhibiting, selling by retail, repairing, or otherwise dealing in any goods or services

• Providing educational, medical, sanitary, or other welfare facilities

• Entertainment, refreshment, or recreation

Under this category, a development will be divided into two titles, which are the residential title and commercial title.

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Residential Vs Commercial Title

A residential title comprises landed and stratified developments such as bungalows, cluster homes, semi-Ds, terrace houses, townhouses, apartments, flats, and condominiums.

Whereas a commercial title consists of office units, shop lots, retails lots, hotels, and other components from mixed developments.

There used to be a clear-cut difference in terms of residential- and commercial-titled properties, as the names of the titles would already describe the respective usage.

However, the past decade has seen developers deciding to get creative with their developments to increase the marketability of their projects.

Developers have started to open up components of their commercial developments for residential purposes as well.

These types of properties include serviced apartments, Small Office, Home Office (SoHo); Small Office, Flexible Office (SoFo); and Small Office, Versatile Office (SoVo).

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This urban trend in the property market is now expanding and gaining popularity, due to the demand from young professionals who work on-the-go or work-from-home.

SoHos usually comprise small- to medium-sized units, with a proper living area, bedroom, and bathroom, while SoFo and SoVo units are smaller.

Basically, these types of units can be anywhere between 400 sq ft to 1,000 sq ft, and can be used as an office, home, or both.

These properties are equipped with all the necessary facilities for both business and living, with prices from RM450 psf to RM700 psf.

Examples Of SoHo, SoFo, And SoVo Properties

1) SoHo – Centrio SOHO @ Pantai Hillpark

2) SoFo – Atria SOFO Suites

3) SoVo – Kiara 163 SOVO

What Are The Differences Between Residential And Commercial Titles?

1) Loan

As discussed earlier, we know that the serviced apartment, SoHo, SoFo, and SoVo units are located on commercial land, and hence the commercial title.

Buyers of these properties are subjected to commercial loan terms, rather than the standard home loan, although they are planning to use it for residential purposes.

So, buyers will need to settle for a maximum of 80% loan-to-value ratio, which means they need a minimum of 20% down payment for the property (the amount could be more, depending on the  bank’s approval).

Another difference is that unlike purchasing a residential property, only certain types of residences with commercial title are allowed to be purchased with the funds withdrawn from the purchaser’s EPF Account 2, such as studio apartment, service apartment, SOHO and a shop lot with a residential unit.

2) Legal

This could be one of the most confusing parts of buying a commercial-titled residential unit. Now, residential properties are protected under the Housing Developers (Control and Licensing) Act 1966 (HDA).

However, many do not realise that the Sale and Purchase Agreement (SPA) for SoFo and SoVo units are not regulated under the HDA.

Datuk Chang Kim Loong, Secretary-General, National House Buyers Association (HBA) said that the HDA provides protection for homebuyers through Schedule H and Schedule I.

Over the years, amendments had been made to further protect homebuyers, which includes covering residential properties that have a commercial title, such as SoHos and serviced apartments.

“However, SoFo and SoVo units are still not regulated by the HDA, even though buyers will be signing a SPA just like any other residential unit. These units will be subjected to the control of the local authority, as mentioned in the NLC,” he said.

He went on to add that in case of any disputes, strata homebuyers can bring up their cases to the Strata Management Tribunal.

However, he said that for commercial property purchasers, their legal recourse is through the courts and the arguments will be based on the SPA that was signed by both parties.

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3) Utilities

Utility bills, such as electricity tariffs for commercial properties, are usually 30% to 50% higher than residential properties. So, clearly the serviced apartment, SoHo, SoVo, and SoFo units will be more expensive for owners.

However, you can apply to TNB to change the tariff to a residential rate from a commercial one. All you need to do is submit a formal application and pay the necessary stamp duty via the nearest Kedai Tenaga.

[PropertyTip]These commercial rates apply unless it can be justified to the relevant authorities of a unit’s residential usage. Once the owner is able to prove that it’s used as a residence, he/she will then be able to enjoy residential rates instead.[/PropertyTip]

*TNB tariff for residential-titled properties, taken from TNB

TNB tariff for commercial-titled properties, taken from TNB

4) Taxes

Quit rent and assessment rates for properties with a commercial title are generally higher than units with a residential title. The amount is approximately 2.5 times higher for a commercial-titled unit.

Converting A Land From Commercial To Residential Title

So far, we know that living in a home with a commercial title has quite a few disadvantages. The main question now is: Can we change the title from a commercial one to a residential title?

According to the Valuation and Property Services Department (JPPH), land title conversion can be done if the owner intends to use the land for another category of use (other than the one originally stated in the title).

Sections 124 and 124A of the NLC, as well as the respective State Land Rules, do allow landowners to apply for such changes.

However, bear in mind that the State Authority will charge an additional premium on all conversion applications approved for change of use.

The conversion can be done by applying to the Land Office/Land and Mines Office, and must comply with all the requirements. Information required from the landowner include the following:

• Copy of the title

• Address of the property (if any)

• Site plan

• Location plan

• Development proposal

• Feasibility study (if any)

• Valuation report (if any)

Although choosing a commercial-titled residential property may have its own drawbacks, the lifestyle and convenience offered makes it ever-popular among the younger generation.

Buying and investing in these properties will subject to a caveat emptor (read: buyer beware) basis, since it isn’t as straightforward as a residential-titled one.

There are several matters to look into before deciding on your purchase. Make sure you do your necessary research before buying, so that you aren’t taken aback by unpleasant surprises!

Relevant Guides:

• 3 Types Of Land Title Damages And How To Get A New One

• The Strata Management Act (SMA) 2013 In Malaysia, And How It Affects You

• Understanding Housing Development Act Malaysia (HDA) And Defect Liability