This article explains everything you need to know about commercial property loans. The mechanics of a commercial property loan work just like a housing loan. Even commercial properties can be refinanced. However, there are a few key differences between them.
No maximum Loan-to-Value (LTV) ratio restriction
As part of the efforts to curb property price inflation, Bank Negara Malaysia (BNM) has mandated that if a person already has 2 existing residential property loans, the maximum margin of finance for their 3rd residential property loan onwards is 70%.
Commercial property loans do not have such a restriction, and many property investors use this to their advantage.
Type of Properties Financed
- 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
Note: There is confusion as to whether SoHo units and Serviced Apartments should be financed using a home loan or a commercial property loan package. In truth, there are no blanket guidelines for banks to follow. It is decided by the banks for each project individually, and depends very much on the bank’s tolerance for any potential complications down the line e.g. For SoHo projects that fall under Housing Development Act, the same bank may use housing loan package for one project while using commercial property loan package for another.
Property Type Preferences of Banks
Comparatively, when it comes to home loans, banks are not very particular about the property types they would finance. But the opposite is true for commercial property loans, being very particular about the types of properties they will finance or refinance (E.g. Some banks will not finance factories / retail space inside shopping malls / anything other than ground floor of mixed developments). It varies from bank to bank and could be based on some of these considerations:
- Type of commercial property
- Commercial or agriculture land
- Total number of floors in the building
- Which floor the property is on
- What type of unit if it is inside a mixed development
Watch Out For
- Lower maximum Margin of Finance in most cases as compared to up to 90% for residential loans
- Expect a lower maximum loan tenure, usually from 25-30 years
- Restrictions that some banks place on the types of commercial properties they would finance e.g. A lower Margin of Finance for certain types of properties
If you're looking for a commercial property loan, you can make use of Loanstreet’s Home Loan Comparison tool to find the package and interest rates that best suits your needs.