How to Scale Your Commercial Property Portfolio with a Sdn Bhd Investment Holding Company
- Suresh Menon
- Aug 27
- 6 min read
Commercial property investment in Malaysia offers an exciting pathway for wealth creation. By leveraging an Investment Holding Company (IHC) or Sdn Bhd, you can unlock opportunities to grow your portfolio strategically and efficiently. This comprehensive guide will walk you through the benefits, processes, and challenges of using an Sdn Bhd to scale your commercial property investments.
Table of Contents:
What is an Investment Holding Company (IHC)?
An Investment Holding Company (IHC) is a corporation set up primarily to own and manage assets such as property, shares, or other investments. Unlike operational companies, IHCs do not conduct any active business activities and function as "shell companies" to hold and protect these assets.
Key Features of an IHC:
1. Primary Source of Income:
At least 80% of the company’s gross income comes from investment-related activities such as:
Dividends (from shares held in other companies)
Interest (from fixed deposits or loans to subsidiaries)
Rental Income (from property ownership)
Formula: Total Gross Income = Dividend + Interest + Rental
2. Separate Legal Entity:
An IHC is legally distinct from its shareholders. This means:
Shareholders' liability is limited to the amount of capital they have invested in the company.
The IHC, not the individual owners, is responsible for debts or obligations.
3. Independent Capacity:
The company has its own ability to:
Borrow loans from financial institutions.
Pay taxes on its income (separate from its shareholders).
Initiate or defend legal proceedings, as it can sue and be sued in its own name.
In essence, an IHC offers a strategic structure for individuals or groups aiming to manage and protect assets efficiently while enjoying the benefits of limited liability and tax advantages.
Why Use a Sdn Bhd (IHC) for Commercial Property Investment?
1. Debt Service Ratio (DSR) Advantage
One of the significant benefits of purchasing commercial properties through an Sdn Bhd is its impact on your Debt Service Ratio (DSR). When you take a mortgage loan under an Sdn Bhd, the loan details are not reflected in your Central Credit Reference Information System (CCRIS) report as part of your personal financial obligations.
This separation offers two key advantages:
Preserving Personal Borrowing Capacity: Your personal DSR remains unaffected, allowing you to secure additional loans for personal use if needed.
Unlimited Scaling Potential: Since loans under a Sdn Bhd don’t count against your personal DSR, you can effectively acquire multiple commercial properties without impacting your individual borrowing limits.
This makes an Sdn Bhd an ideal structure for scaling your property portfolio while maintaining flexibility in personal financing.
2. Higher Rental Yields
Commercial properties often generate higher rental yields than residential properties. For example, retail spaces or office units can yield rental returns of 6–8%, compared to residential properties’ average of 3–5%.
3. Tax Efficiency
An Sdn Bhd benefits from corporate tax rates, which can be as low as 17% for the first RM600,000 of chargeable income, compared to individual tax rates that may go up to 30%. Additionally, expenses like property maintenance, interest on loans, and professional fees are deductible, reducing taxable income.
4. Portfolio Diversification
Investing through an Sdn Bhd allows you to diversify your holdings. You can include commercial properties such as retail spaces, warehouses, or office buildings, balancing risk across sectors.
5. Limited Liability Protection
As a separate legal entity, the Sdn Bhd shields your personal assets from business liabilities, a critical safety net in high-capital ventures like commercial property investments.
Step-by-Step Guide to Scaling Your Portfolio with an IHC
1. Setting Up Your Sdn Bhd
Incorporation Process: Register your company with the Companies Commission of Malaysia (SSM). Prepare essential documents like the Memorandum and Articles of Association (M&A) and appoint at least one director.
Define Nature of Business: Ensure your company's primary business activity includes property investment.
Open a Company Bank Account: This account will be used for all property transactions and rental income management.
Naming Your Company: Ensure the company name reflects its purpose, such as "[Your Name] Property Holdings Sdn Bhd."
Costs: Expect incorporation fees of approximately RM1,000 to RM1,500, plus annual compliance costs of RM5,000–RM10,000 for accounting and secretarial services.
2. Acquiring Your First Commercial Property
Financing Options: Commercial properties often require a higher down payment, typically 15–20%. Banks like Maybank and CIMB offer tailored loans for Sdn Bhd-owned properties.
Loan Margins: While individuals can secure up to 90% financing for residential properties, Sdn Bhd usually qualify for 80–85%, depending on the company’s financial health and track record.
Example: For a RM2 million property, you may need a 20% down payment of RM400,000.
3. Managing Cash Flow and Rental Income
Rental Agreements: Commercial leases typically last 3–5 years with the option to renew, offering predictable income.
Cash Flow Management: Allocate rental income towards loan repayments, property maintenance, and reinvestment in additional properties.
4. Refinancing to Scale
Leverage Existing Properties: After your first property appreciates in value, refinance it to free up capital for the next purchase.
Example: If your RM2 million property appreciates to RM2.5 million, a refinance at 80% Loan-to-Value (LTV) can yield RM2 million, enabling you to purchase another property.
Strategy: Use this rinse-and-repeat approach to grow your portfolio steadily.
Margin of Financing: Residential vs. Commercial Properties for Individuals and IHCs
Individuals:
Property Type | First Property | Second Property | Third Property Onwards |
Residential Property | Up to 90% | Up to 90% | Up to 70% |
Commercial Property | Up to 80–85% | Up to 80–85% | Up to 80–85% |
Investment Holding Companies (IHCs):
Property Type | First Property | Second Property | Third Property Onwards |
Residential Property | Up to 60% | Up to 60% | Up to 60% |
Commercial Property | Up to 80–85% | Up to 80–85% | Up to 80–85% |
Key Insights:
1. Commercial Property Advantage:
For commercial properties, an IHC can secure margins of up to 80–85% consistently, even for subsequent properties, making it a more favorable structure for scaling a commercial property portfolio compared to individual ownership.
2. Residential Property Challenges:
For residential properties, IHCs are less advantageous due to the lower financing margin (up to 60%) across all purchases. This means investors must prepare a higher down payment of at least 40% for residential properties under an IHC.
3. Loan Application Merit:
When submitting a loan application, banks often prioritize corporate guarantors (e.g., based on the IHC’s financial standing and track record) over individual guarantors (e.g., based on a director’s personal income and commitments). This strengthens the IHC’s credibility and enhances loan approval chances.
This highlights that while IHCs are ideal for commercial property investments, individual ownership might be more practical for residential properties due to higher financing margins and lower initial capital requirements.
Real-World Example: Portfolio Growth with an Sdn Bhd
Case Study: Retail Spaces in Kuala Lumpur
Initial Investment: A retail space in Bukit Bintang purchased at RM3 million, yielding annual rental income of RM240,000.
Refinancing: After three years, the property appreciates to RM3.6 million. Refinancing at 80% LTV unlocks RM2.88 million.
Next Investment: The funds are used to acquire a smaller office building in Mont Kiara. This diversification minimizes risks and enhances income streams.
Key Costs and Considerations
Startup and Maintenance Costs:
Registration: RM1,000–RM1,500
Accounting and Compliance: RM5,000–RM10,000 annually
Loan Interest Rates: Commercial loans generally have higher rates than residential ones, often ranging between 4–6%.
Stamp Duty and Legal Fees:
Stamp duty for property purchases is tiered and can go up to 4% for amounts exceeding RM1 million.
Legal fees for property transactions range from 1–2%.
Real Property Gains Tax (RPGT):
For properties sold within the first three years, companies are subject to a fixed Real Property Gains Tax (RPGT) rate of 30%. However, starting from the 6th year onward, the RPGT rate drops to 10%. This highlights the critical role of long-term investment planning in minimizing tax liabilities and maximizing returns.
Challenges and How to Overcome Them
Higher Initial Capital Requirements
Solution: Pool resources with business partners or consider joint ventures to reduce individual financial burdens.
Lower Financing Margins
Solution: Build a strong financial profile for your Sdn Bhd by maintaining accurate records and ensuring consistent rental income streams.
Complex Taxation and Compliance
Solution: Hire experienced tax advisors and accountants who specialize in property investment.
Additional Tips for Success
Engage Professionals
Work with loan consultants, property agents, tax consultants, and legal experts to navigate the complexities of commercial property investment.
Monitor Market Trends
Stay updated on sectors with strong demand. For instance, the growth of e-commerce has increased demand for warehouses in areas like the Digital Free Trade Zone (DFTZ) in Sepang.
Leverage Technology
Use property management software to streamline rental collection, tenant management, and property maintenance.
Final Thoughts: Is a Sdn Bhd (IHC) Right for You?
Using an Sdn Bhd to invest in commercial properties offers significant advantages, from tax efficiency to scalable portfolio growth. However, it’s essential to assess your financial capacity, risk tolerance, and long-term goals before embarking on this journey. With the right strategy and team, you can build a robust and profitable property portfolio in Malaysia.
