Should you invest in real estate through a company?

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Creative Commons License photo credit: kevindooley

Most people are familiar with individual ownership of real estate property because they already own a home. When they decide to get involved in investment real estate, individual ownership is the first approach that comes to mind. There are, however, various other methods of taking title to a real estate investment. One of the most popular ways is through a private limited property holding company.

Advantages of investing through company
There are several advantages to buy properties under a property holding company. One of the biggest advantages most people may think of is the tax benefits. In fact, tax advantage of a company is only significant if your personal income tax bracket is already exceeding 20%. This is because corporate tax is at a flat rate of 20% for annual profit below RM500k.

Other tax benefits of a company include more deductibles than personal’s such as staff payroll, depreciation (or capital allowance) on plant and machinery and industrial buildings, and other operating expenses.

A company also allows foreign investors to act as directors of the company to invest in properties priced below RM500k through the company. Foreign investors who want to buy properties in Malaysia with individual ownership can only purchase properties priced above RM500k and they have to pay a levy of RM10k to the authority for each property.

But wait…
However, rental income of a company can only be treated as business income in Malaysia if the company owns 4 or more residential/ commercial rental properties. Otherwise the rental income is not subject to the above deductibles unless the company provides ancillary or support services/facilities (public ruling of income from letting of real property).

Also, not forgetting when we run a company, we have to pay extra costs to maintain the company like secretarial fee, auditing fee. A minimum cost of RM2000-RM3000 per year is required if yearly transactions of the company are not many. Extra effort such as bookkeeping, preparation of resolutions for every acquisition of property and for authorisation to bid each auctioned property is also required.

You may also face difficulty to take up mortgages from banks when your company is still young (less than 2 years). And normally banks will offer higher interest rate (0.5%-1% higher than personal’s mortgage) and shorter tenure (< 20 years) for corporate’s mortgages.

All these have to be taken into consideration before you decide if you want to acquire properties through a company. Unless you plan to grow your company into a larger scale of property holding, investing through individual ownership is still considered more viable in the beginning until you have reached high personal income tax bracket or the maximum limit of personal credit allowed by banks.

In fact, we would think the biggest advantage of buying properties through a company is the limited liability provided to protect your assets, especially if your investments or assets are shared among more than one individual.

You have to think and calculate carefully based on your investment plan in order to evaluate if it is worth it for you to setup a company. Before venturing into any form of ownership, you should seek professional advice on tax and legal complication to determine which method may be best for you.

 

About The Author

ongkl

Coming from a humble little town named Tangkak in north Johor state of Malaysia, I am so lucky to have chances to learn and work both in Johor Bahru and Singapore - a conurbation with 6.49 million still fast growing population - since year 1996. Hope now I can have a chance to contribute back to the community by sharing what I see, what I know and what I learn in this wonderful place.

12 Comments

  • KCLau

    Reply Reply March 16, 2009

    Hi KL,

    Would it make sense to start with individual ownership, then when the investor acquire 4 properties, a private limited company is setup to hold the real estate?

    My situation is that I co-own our existing properties with my wife. What do you recommend?

    • ongkl

      Reply Reply March 19, 2009

      Hi KC,

      It makes sense to start with individual ownership first. However, it may not be necessary to setup a private limited company after you acquires your 4th property. It depends on which approach will give you the maximum cash flow.

      If the total cash flow generated from your 4 properties (after all the operating expenses and corporate tax) is lower than the total cash flow generated if you own them under individual ownership, setup a company is not advisable. For example, if you have 4 low-cost apartments which give you a total cash flow of RM2000 every year before deducting any secretarial and auditing fees, it’s better you don’t setup a company because yearly secretarial and auditing fees are already around RM2000.

      Buying properties together with spouse is so far the best way to acquire properties with individual ownership. You can make use of 2 persons’ income tax brackets to pay the minimum tax while easily get approval from bank for your loan application because of higher allowable credit limit.

      Cheers

  • HO

    Reply Reply March 17, 2009

    emmm……….i have 3 co-own shop offices and 2 self-own apartments.
    can i put all the above properties into a private limited company?
    how can we “legalise” share holding in those shops as i co-own with different partners?

    • ongkl

      Reply Reply March 19, 2009

      Hi Ho,

      Yes you may. But don’t forget you have to transfer the properties to your new company which will cost you some money.

      All properties under a company are assets to all shareholders in terms of share. In other words, if you put your 2 self-owned apartments under your company, all shareholders of the company will have a share in your 2 apartments too.

      Cheers

  • jasonhanjk

    Reply Reply April 28, 2009

    Hi.

    Discussion going on at Lowyat.

    Properties bought under a company
    http://forum.lowyat.net/topic/962566

  • Hamed

    Reply Reply December 1, 2011

    Can a private limited company with both directors are foreigner buy a property that is less than RM$500 thousand..

    • ongkl

      Reply Reply December 8, 2011

      Hi Hamed, a local company requires at least 2 local directors with more than 50% shares held by local shareholder(s), and only a local company is eligible to buy properties less than RM500k.

  • Andson Lim

    Reply Reply February 10, 2012

    Hi,

    If my wife is a foreigner and I am local, can my wife apply PR malaysia and invest properties in Malaysia which less than RM 500k? Thk…

  • Alan

    Reply Reply February 26, 2012

    Hi, I would like to register an investment company at johor bahru, transfer all my shares into this company . initial capital will be RM$ 100,000 . Please advise : 1) any cost for yearly incur ; 2) Register an individual owership or private limited company ?

    regards ,
    Alan

  • meesiam

    Reply Reply April 8, 2012

    Any contact or secretariat service you can recommend to set up a company in JB?

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