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Around us, several buildings appear similar to residential areas, complete with terraces and yards, but with shop or office signs in front. These buildings could be described as commercial properties.
This concept may sound strange to some. Aren't homes supposed to be places to live? So why would some houses be used for business?
In the real estate world, "commercial housing" has a very specific concept and differs from regular residential housing. Understanding this distinction is crucial, not only for investors and businesspeople but also for the general public.
Here, we will discuss the definition of commercial housing in full, its characteristics, and the reasons behind the varying prices of this type of property.
What is a Commercial House?
Commercial property is property that is legally designated or converted for business purposes or commercial activities, not for use as a private residence.
The contents also differ in terms of purpose and permits. A building is defined as commercial if it is primarily used to generate income from various types of economic activities, including:
Commerce: Shops, boutiques, minimarkets, or galleries.
Services: Office, clinic, salon, workshop, or service bureau.
Accommodation: Guest houses, homestays, or apartments for daily rent.
Entertainment: Cafe, restaurant, or fitness center.
Even though the building may look exactly the same as a house, its legal status and users are very different.
If you buy a residential house in the countryside and suddenly open it as a cafe without a permit, the property cannot be considered a commercial house.
It's simply a house that's been misused for its intended purpose. To be commercially viable, the property must meet specific requirements set by the local government.
Differences between Commercial and Subsidised Housing
Here are the differences between subsidised housing and commercial housing. Get to know the difference:
Commercial Property – Flexible and Investment Capital
Commercial properties are properties built and sold by developers without government intervention or assistance.
This commercial housing is designed for all segments of society, with no restrictions on income status or home ownership history. Its price and condition fully capitalise on the market.
Main Characteristics of Commercial Homes:
1. Commercial housing prices are market prices, which are heavily influenced by strategic location, building quality, and amenities. Commercial housing types are two to five times more expensive than subsidised housing, even for the same type.
2. Generally established in more strategic locations, such as adjacent to city centres, business areas, or areas with complete transportation and public facilities (schools, hospitals, shopping centres).
3. Developers have free choice in terms of building quality, design, and home type. You can find commercial homes with contemporary designs, luxury materials like granite, and complex amenities like swimming pools, clubhouses, and 24-hour security.
4. Anyone can buy, especially for personal use or investment. There are no income requirements or restrictions on owning a second home. The mortgage process is also more flexible, although it does require a larger down payment, around 10-20%.
5. The mortgage interest rate for commercial homes is floating, meaning it can rise or fall according to the BI Rate benchmark interest rate. This can cause your monthly instalments to fluctuate over time.
6. The owner has complete freedom to renovate or resell the property at any time, without any time limits or special permits.
Subsidised Housing – Affordable Housing Solutions from the Government
Subsidised housing is a government program aimed at transforming low-income communities (MBR) so that they can have affordable and decent housing.
The prices and schemes set by the government are quite strict so that the goal of the right dream home is achieved.
Main Characteristics of Subsidised Housing:
1. Government-funded and relatively cheaper. Subsidies may come in the form of discounts, low mortgage interest rates, and down payment assistance.
2. The conditions are quite strict; you need to meet the following requirements to be able to have subsidised housing: Financial capability with a maximum income determined by the government (usually less than IDR 8 million per month, depending on the location).
3. Do not own a house and have never received housing subsidies from the government before.
4. The house must be occupied by the owner and may not be rented or resold for a certain period of time (usually the first 5 years).
5. Subsidised housing is often located on the outskirts of the city or in newly developed areas. This is to save on land acquisition and construction costs. As a result, access to public facilities and the city centre can be more limited.
6. The quality and building materials of subsidised housing meet minimum government standards. Building certification is also limited, typically around the 30/60 or 36/72 types. The designs are functional and vary little.
7. The subsidised mortgage interest rate is flat or constant, at 5% over the loan term until repayment. This is more advantageous, as monthly instalments are more stable and affordable without the worry of interest rates.
8. There may be regulations that prohibit major renovations, especially in the first few years. You also cannot resell the property before the ownership period (usually 5 years) has expired.
Types of Commercial Property Similar to Homes
Although the term “commercial property” is used generally, there are several types of properties that fall under this category:
Shophouse (Ruko)
This is the most popular type. A multi-story building with a lower floor for shops or offices, and an upper floor for residential or warehouse use. Shophouses are most commonly found in commercial areas or along main roads.
Office Building
A purely residential building that functions as an office space. While its shape may resemble a house, its intended use clearly prioritises business.
Converted House
A house originally built for residential purposes, but later repurposed as an office, cafe, or clinic, requires expensive renovations and permits.
Why Choose Commercial Property?
For some, commercial property is a more attractive investment alternative. Here are some reasons why:
- Commercial property rental prices per square meter are generally higher than those of residential properties.
- Business leases are longer (e.g. 2-5 years) compared to residential leases (e.g. 1 year), which provides better income stabilisation to the owner.
- Investing in commercial property can be a way to diversify assets and reduce risks specific to that type of property in particular.
If the tenant goes bankrupt or moves out, the property could remain vacant for an extended period, meaning no income. Maintenance and repair costs for commercial properties can be higher due to the intensive nature of the property.
Buying commercial property can be more difficult and time-consuming than buying residential property because the market is more focused.
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