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How To Convert Commercial Title to Residential Title?

Updated 18 Jun 2021 – By Contributor - iProperty


Converting a commercial title to a residential title is not straightforward, but it’s possible.  One of the many solid reasons homeowners are converting their commercial property to residential property is due to the higher assessment rates and utility charges. There are also activities that you can and cannot do in each property type.


1. What are commercial-titled properties? 



© Monika Mlynek/ 123RF

Commercial properties were developed for business activities or business-related activity purposes. Therefore, commercial rates and tariffs (utilities and taxes) are applied to these properties, which are higher than the fees charged for residential-titled properties. Also, these properties do not fall under the jurisdiction of the Housing Development Act (HDA) and the owners are not entitled to Real Property Gains Tax (RPGT).

Serviced apartments, SoHos, SoVos, SoFos, SoLos are all commercial-titled properties. Serviced residences and SoHos are largely marketed as residential properties whereas SoVos, SoFos, SoLos are not designated for dwelling. As service apartments and SoHo are mainly used for residential purposes, they are protected under the HDA, and buyers of these units will be signing a standard Sales and Purchase Agreement (SPA).  

On the contrary, SoVos and SoFos are essentially offices and not regulated under the Housing Development (Control and Licensing) Act 1966 (HDA). Hence, they do not have a standard SPA.



2. What are residential-titled properties? 


© jamesteohart/ 123RF

Residential properties include landed houses, condominiums, and flats. Property owners can live in the property, buy them as an investment or rent them out for extra income. A residential property holds either a Leasehold or a Freehold tenure. There are also other property titles that homeowners and potential buyers must be aware of. For example, Master Title, Individual Title, Strata Title, Malay Reserve Land, and Bumi Lot. Each of them has its pros and cons thus understanding them is crucial. This will affect your ownership, transfer of ownership, land conversion, price appreciation, and even marketability.



3. Can you convert commercial title to residential title?

A commercial title can be converted to a residential title but the owner must be able to prove that the property is mainly or wholly used for dwelling.

 

4. How to convert a commercial property into a residential property?

Different areas may have different regulations and requirements for converting commercial property to residential property. It is best to consult your local authorities if you’re planning for a property conversion. Besides financial planning, time, necessary documents, and other challenges, it also depends on local authorities’ rules, regulations, and approvals. Once approved, you will enjoy residential rates for taxes, assessment rates, and utility fees.


Change in the category of land use

Under Section 52 of the National Land Code 1965, all alienated lands are divided into three categories of land use –  Agriculture, Building and Industry. Valuation for the change of land title or use is normally carried out by the Valuation and Property Services Department (JPPH)

If a landowner intends to use his land for other use than the category stated in the title, the owner must apply to change the category of land use accordingly.  Sections 124 and 124A of the National Land Code and the respective State Land Rules allow landowners to apply for such changes. The State Authority will charge an additional premium on all applications approved for change of use.



Application for conversion of land title

The landowner must submit his application to the Land Office/ Land and Mines Office and must comply with all the requirements. The landowner must be able to provide:
  • Copy of the title;
  • Address of the property (if any);
  • Site plan;
  • Location plan;
  • Development proposal;
  • Feasibility study (if any); and
  • Valuation report (if any)
If an applicant fulfils all requirements, JPPH will then report the valuation to the Land Office/ Land and Mines Office within 10 working days upon receiving the application by the office.

 

5. Residential title vs commercial title

  Residential-titled Commercial-titled
Type Condominium Serviced apartment Serviced apartment
Use of building For residential only  For residential only but development may comprise commercial units such as retail units, offices, and hotels.
  • SoHos can be used for residential or business purposes.
  • SoVos, SoLos and SoFos are designated for business purposes only and not for dwelling.
  • Development may comprise commercial units such as retail units, offices and hotels. 
Assessments rates, taxes and utility fees
  • The domestic rate is applied for assessment rates and utility fees.
  • Entitled to once in a lifetime RPGT exemption.
  • The commercial rate (higher than the domestic/ residential rate) is applied for assessment rates and utility fees.
  • Entitled to once in a lifetime RPGT exemption. 
  • The commercial rate (higher than the domestic/ residential rate) is applied for assessment rates and utility fees. 
  • Not entitled to once in a lifetime RPGT exemption.
Legal protection and SPA It falls under the HDA’s jurisdiction and it uses the standard SPA regulated under the HDA. A  homebuyer can bring disputes to the Tribunal for Homebuyer Claims.
  • These developments do not fall under the HDA’s jurisdiction except SoHos. Hence disputes between two parties will be settled in court based on the SPA’s signed by the parties.
  • For SoHos, unit owners can bring disputes to the Tribunal for Homebuyer Claims..
Building density Lower density Higher density
What you can do
  • It is for residential purposes only.
  • Homeowners can bring disputes to the Tribunal for Homebuyer Claims.
  • Homeowners or buyers can claim for defective workmanship from the developer during the 24-month defect liability period.
  • It is for residential purposes only.
  • Homeowners or buyers can bring disputes to the Tribunal for Homebuyer Claims.
  • Homeowners can claim for defective workmanship from the developer during the 24-month defect liability period.
  • Conversion of electricity tariff from commercial to residential is subject to approval.
SoHo
  • SoHos are for residential or business purposes.
  • Owners or buyers can bring disputes to the Tribunal for Homebuyer Claims.
  • Owners or buyers can claim for defective workmanship from the developer during the 24-month defect liability period.
  • For SoHos, the conversion of electricity tariff from commercial to residential is subject to approval. 


SoVos, SoLos, and SoFos
SoVos, SoLos, and SoFos are for business purposes only.
What you cannot do Owners may not carry out business activities to set up an office unless with special permissions.  Using the unit for residential purposes bring disputes to the Strata Management Tribunal (SMT).


6. Is it legal to run a business from a residential property in Malaysia?


© Denis Koltsov/ 123RF

It is illegal to run a business from a residential property in Malaysia. You need to convert your residential property to commercial property and apply for a business permit or business licence for purposes like kindergartens, old folks’ homes, and caring homes. This includes renting it out for commercial purposes. 

As for short-term rentals like Airbnb, currently, there’s no licence required for homestays and home-sharing in KL. Owners and operators of Airbnb are only required to register their short-term rental properties through the Kuala Lumpur City Hall (DBKL)’s licence portal.

However, in Penang, running a short-term rental business is a violation of the Municipal Council of Penang Island (Trades, Businesses, and Industries) By-Laws 1991 and the Town and Country Planning Act 1976 as it is against residential purposes. 

The rules and regulations differ for every state or area. Speak to your local authorities or local government’s planning office before you start a short-term rental business.

 

7. How to change TNB tariff from commercial to residential?

You’re paying a much higher utility bill if you live in commercial property as it is charged based on the commercial tariff. But don’t worry as you can request and apply for it to be changed to domestic tariff via the myTNB portal or myTNB app. According to Tenaga Nasional Berhad (TNB), ‘domestic consumer’ means a consumer occupying a private dwelling, which is not used as a hotel, boarding house or used to carry out any form of business, trade, professional activities or services. Do note that TNB  deserved the right to change consumer’s tariff based on actual activity at the said premise.
 


8. How to change the water rate from commercial to residential?


© nadtochiy/ 123RF

If the entire development is for dwelling purposes, the Joint Management Body (JMB) and Management Corporation (MC) may apply for a change of water tariff from commercial to residential with Syarikat Bekalan Air Selangor (SYABAS)

Usually, in KL and Selangor, water bills for some highrise residences or developments were issued to the JMB and MC. Then, these statutory bodies will bill it to unit owners. This is because the bulk water meters have not been migrated to an individual water meter.

You may also check Air Selangor Migration Guidelines and FAQs for Account Migration for further information. 


*This article was repurposed from "Commercial vs residential : Can I convert commercial title to residential title?", first published on iProperty.


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