Owning at least one property is on the bucket list of many Asians because of the culture of property ownership in Asia. Property has also been a darling for many investors, as it serves as a hedge against inflation and provides lucrative returns if the transaction is done right.
Over the years, there have also been investors who buy properties under a company instead of their personal names. What are the considerations when it comes to buying properties under a company in Malaysia?
Chur Associates founder and managing partner Chris Tan agrees that buying properties under a company is a popular option among business owners and property investors, rather than general homeowners.
This is especially obvious when it comes to the purchase of non-residential properties. There are many other reasons to buy properties under a company, he says.
“One of the reasons is [to smoothen] the decision-making process for multiple owners … If a property is owned by multiple individual owners, the decision-making must be unanimous — all or nothing. If it is under a company, the decision-making could generally be done by the majority of the shareholdings, unless otherwise provided in the company constitution,” he explains.
“Also, buying a property under a company is about the margin of financing for commercial property. Buying a commercial property under a company will normally give you a better margin from the bank, especially if it is for [your] own business use ... If it is to be owned by individual owners, the margin will be comparatively lower on the presumption that it is for investment rather than own use. On the same analogy, the margin of financing for a company to buy a residential property would be lower.”
He adds that buying properties under a company will also allow for better liquidity for two reasons: the flexibility in opting to sell the company shares rather than the entire property, as well as better tax efficiency.
“Selling the company shares can actually mean selling part of the property and not necessarily the entire property. Selling company shares could also be subject to a different tax regime with different tax treatment, hence better tax efficiency too.”
Nevertheless, there are differences when it comes to buying properties under a company compared with individual ownership of property. Tan notes that a company has limited liabilities and is regulated by the law in terms of compulsory annual audit and filing of annual returns.
As a company’s maintenance and continued existence require costs and expenses, he says, the process of property acquisition and the financing arrangement will be different. Company resolutions need to be passed and directors’ guarantees may be required, given that the company has only limited liabilities.
“The margin of financing offered by the bank is also different based on the type of property purchased … Other than liquidity, margin of financing and tax efficiency, you also need to consider the cost and legal compliance of establishing, maintaining and closing a company, if you want to buy properties under a company,” he says. As with any investment, do your research and proceed with caution.