A simple guide to help property buyers pick what is best for their needs.
As a developing country, Malaysia has been involved in many upcoming developments, especially in the office, retail and residential sectors. With the demand for smaller but more versatile living spaces on the rise, various developers are continuously paying an effort to create designs which are appealing to the lifestyle of the young and upwardly mobile buyers.
Over the years, various new terms have been coined to define properties under a commercial title. The terms include SoHo, SoVo, and SoFo, which are an acronym for Small Office Home Office, Small Office Virtual/Versatile Office, and Small Office Flexible Office respectively. These developments are usually located in prime hotspots, near MRTs, or next to a shopping mall.
How did the terms come about?
These loosely-defined terms were created by property developers as marketing tools and are not officially defined by a statute or government authority. Developers are cleverly branding units smaller than 500 sq ft in order to attract a broader pool of prospective purchasers with smaller budgets.
As more commercial units came into the market, the names for these developments became more and more creative. It is up to the developer to decide what to name their products.
SoHo, SoVo, and SoFo were just some of the more fancy acronyms used to describe these developments, which appeal to a new breed of cosmopolitan urbanites who want it all – location, connectivity and flexible space.
These properties started to emerge after the Strata Titles Act was expanded to cover stratified developments, and amendments were made to the Housing Development Act (HDA) in 2007. With the amendments, developers were given the green light to develop small units in high-density locations, leading to the birth of SoHo, SoVo and SoFo properties!
It can be confusing for those who are unfamiliar with property jargon. So, what exactly are these units?
What are SoHo, SoVo, and SoFo properties?
SoHo, SoVo and SoFo are properties intended for commercial purposes. The commercial land title distinguishes SoHo, SoVo, and SoFo properties from other residential projects. For that reason, these properties are usually a part of mixed-use developments in strategic locations near shopping malls and public transport like LRTs and MRTs for the convenience of property owners. Additionally, it is designed to meet all safety requirements for a commercial building.
Their interiors are built like condominiums, with residential-style lifestyle facilities such as swimming pools and gymnasiums. These units are being sold as not just living spaces but versatile working spaces for entrepreneurs or new ventures to work from the comfort of home, particularly suitable for those in designing, IT and any of the likes. It is usually meant for start-ups or independent businesses requiring a small base of operations.
As SoHo, SoVo and SoFo properties come under a commercial title, owners or tenants must be prepared to pay higher utility bills, parcel rent and commercial assessment rates than those of a residential property.
So, how do each of these properties differ?
SoHo (Small Office Home Office)
SoHo properties are the most common of the three and can be used either as a home or an office. It is generally modest in size and is designed with bedrooms, a living room, a kitchen, and fully-fitted bathrooms. Its regular built-up size ranges from 500 to 1,200 square feet, which appeals to singles, newlyweds, and young professionals, as well as small businesses employing one to ten people.
The majority of SoHo is equipped with condominium facilities, such as swimming pools and gyms. These properties may be affordable and convenient office spaces for start-ups and small businesses.
While having a commercial title, SoHo units are considered housing accommodations and are protected by the Housing Development Act (HDA) with a standard Sales and Purchase Agreement (SPA) as these units come with residential features. Additionally, this means that disputes regarding SoHo properties will be settled by the Tribunal for Homebuyer Claims.
Here are some of the main benefits of the HDA afforded to SoHo units:
The developer is liable to pay the penalty for any delay in the completion of the project. The late delivery interest is calculated on a day to day basis at a 10% per year rate of the SPA price.
The buyer enjoys a defect liability period, which spans around 24 months from the day the buyer receives delivery of vacant possession and gets the keys to the house. In this period, the developer has to correct any errors and flaws in the construction.
Since a SoHo incorporates the element of “home” or residential property in its makeup, it has a significant advantage over SoFo and SoVo units. Some SoHo units in Kuala Lumpur include SoHo Suites at KLCC, The Scott Garden SOHO in Old Klang Road, and Flexus Signature Suites located in Jalan Kuching.
SoVo (Small Office Virtual/Versatile Office)
SoVo units are mostly used by start-up companies as they are fully equipped with the required telecommunication and infrastructural facilities needed for the nature of the business, making commercial activities more convenient to take off immediately.
The built-up area for this type of concept ranges from 400 sq ft to 800 sq ft. With a convenient size for small business operations, a SoVo unit is a wise choice for professionals who operate Internet-based businesses including email marketing services, SEO consulting or e-commerce.
Unlike SoHo and SoFo units, SoVos don’t have bedrooms and living rooms. Notably, a SoVo unit is strictly applicable for commercial purposes only. Consequently, human dwelling is not permitted here, and property owners or tenants are not allowed to stay overnight on the property if the management does not allow it.
Unlike SoHo, SoVo properties are not HDA protected and buyers must also sign a non-standard SPA with the developer if they wish to purchase a unit. Although it is ideal for commercial purposes, the only disadvantage is that all utilities are charged based on commercial rates, which are usually higher than residential rates.
Some examples of SoVo units include the Habitus @ City of Elmina in Denai Alam, Sovo @ D’Sara Sentral in Sungai Buloh and Kiara 163 SOVO in Mont Kiara.
SoFo (Small Office Flexible Office)
SoFo is a small unit that offers owners more flexibility in design and layout, where owners can use it as an office or home or both. SoFo units are unique because they have an internal partition, which is a wall that can be shifted or removed. This allows owners to modify their office space according to their preferences, such as placing an additional bed in one room or an extra office desk in another.
They typically have built-up areas ranging from 400 sq ft to 1,300 sq ft. The units are more flexible due to the absence of barriers between designs, enabling owners to customize the unit however they wish. Owners can also buy two units side by side and build an internal connection to create a larger and more comfortable area.
These properties are also frequently outfitted with condominium-style amenities and services within their buildings. As a result, SoFo properties appeal to lifestyle-oriented young professionals, self-employed individuals, couples, and small businesses alike. Just like SoVo units, SoFo units are categorized under the commercial title without any protection by the HDA.
Some of the examples of SoFo properties are Infinity Tower in Kelana Jaya, Edelweiss SOFO @ Tropicana Gardens in Petaling Jaya, Ativo SOFO @ Damansara Avenue in KL, and Edumetro in Subang Jaya.
Before making a major purchase decision, buyers need to know that there is no HDA protection and standard SPA for SoFo and SoVo units. Hence, any dispute that arises for the SoFo and SoVo units on false advertising, defect liability periods, or insurance premiums would have to be settled in the courts, in accordance with the SPA.
Why are SoHo, SoVo and SoFo so attractive?
The working environment of small businesses is becoming increasingly flexible, and more and more people now have the opportunity to work from home on a regular basis. Flexible work arrangements were a trend before Covid-19 and have now accelerated as employees are given the freedom to work remotely from home.
Others who are self-employed or run their own business may choose to work from home permanently, along with freelancers and those working in the gig economy, as many of them have experienced how successful telecommuting can be for their business without injury to productivity. With flexible hours and remote work arrangements, this also means a rising number of people are using their homes as workplaces.
A SoHo or SoFo unit offers the best of both worlds with the comfort of having a living area integrated with a workspace, while a SoVo unit ideally suits start-up businesses as they are equipped with the required technology-related facilities and infrastructural capabilities critical for company start-ups to get off the ground quickly.
These properties are a great fit for urbanites – people who enjoy living in or very close to the city centre as most SoHo, SoFo, and SoVo units are built in these areas. Having the city on one’s doorstep and all its amenities like shopping malls, cinemas, bars and restaurants can be hugely appealing for modern professionals and working millennials.
What do buyers need to know before buying SoHo, SoVo and SoFo?
Below are some things to consider before property seekers purchase a SoHo, SoVo or SoFo.
Terms of loans
As SoHo, SoVo and SoFo units are built on commercial land, they are subjected to commercial loan terms. Generally, it is not favourable to an ordinary homebuyer as the loan amount for commercial property is much lower compared to residential loans. This means that buyers might not be able to secure a 90% loan typically offered on residential properties. Additionally, the duration of the loan could be shorter too, such as 25-30 years.
On the other hand, being a commercial property means buyers are not bound by the 70% maximum margin of finance from their third property onwards. That being said, loan terms ultimately depend on buyer profiles and the developer’s agreement with finance institutions.
Utility and maintenance bills
As SoHo, SoVo and SoFo come under a commercial title, the utility rates tend to be more expensive compared to residential properties. This is because they are subject to numerous utility and tax charges such as telephone bills, commercial assessments, as well as quit rents following commercial property laws. For example, the electricity tariff for commercial property is potentially 30% to 50% more expensive than for residential property. According to Tenaga Nasional Berhad (TNB), residential properties are charged an electricity tariff of only RM0.218 per kWh, while low-voltage commercial properties are charged RM0.435 per kWh for the first 200kWh – nearly double the rate.
However, it is imperative to note that TNB and Indah Water Konsortium utility bills for some SoHo units can be converted from commercial rates to residential rates, but this is on a case-by-case basis. Owners will have to apply individually or as part of a joint management body (JMB) or management corporation (MC).
Legal protection and Sale and Purchase Agreements (SPA)
Buyers need to be aware that SoFo and SoVo units do not have the standard Sale and Purchase Agreements. This is because they are not regulated under the HDA. Instead, the terms of the purchase of commercial properties are drafted by developers’ lawyers.
Nevertheless, SoHo has the usual standard SPA as it is covered under the HDA. If a buyer purchases a SoHo unit, their rights will be protected under the HDA, such as receiving running water and electricity supply to constitute vacant possession. This is because these properties are usually wholly or partially used for residential purposes.
If an individual decides to purchase a SoFo or SoVo unit, they need to sign non-standard SPAs with the developers, which remain excluded from protection under the HDA. This means that it will be more challenging for buyers to claim against any defects in common facilities for SoFo or SoVo units, and is subject to dealings with the developer. If SoFo and SoVo are meant for permanent residential usage, they will fall under the control of local authorities – clearly defined under the National Land Code in regards to residential usage on commercial land.
Here is a table of the main differences between SoHo, SoVo, and SoFo that will come in handy!
In conclusion, there are different building guidelines for commercial-titled residences, namely SoHo, SoVo, and SoFo. These properties are different from one another, though they share some similarities such as size and price. The functionality of each development is distinct depending on the owner’s intention of buying the property. Hence, it is essential for purchasers to understand their own rights and what they are buying to avoid disappointment.
Catered for a market hungry for affordable properties, prices for SoHo, SoVo and SoFo are relatively cheaper than buying a condominium or a landed property. These units are made more affordable for first-time investors and also for young professionals who have just started working. Although SoHo, SoVo and SoFo are popular among the younger generation, buying or investing in either one of them is a different thing. Factors like location, price, feasibility, security, and many others also need to be considered before deciding to buy a non-landed property to avoid unnecessary consequences.
While SoHo, SoVo, and SoFo units are attractive for their favourable location and price, it is wise for buyers to plan their finances ahead before they purchase a unit, as well as to consider the property’s loan terms and utility rates.