Commercial vs residential investment: leases, tenure and taxes
Buying · 6 min read · Reviewed February 2026
Commercial property typically produces higher gross yields on longer leases with built-in escalation, but comes with larger deposits, longer vacancy gaps between tenants, stricter loan terms and GST on rent where the landlord is registered. Residential property has shallower yields, shorter leases and simpler tax treatment, with a much deeper pool of tenants and buyers.
Lease structures
Commercial leases usually run for multiple years with a lock-in and a stated escalation, often around a fixed percentage every few years. Fit-out periods, exclusivity and maintenance responsibilities are negotiated in the lease itself.
Residential leases are typically eleven months, renewed by agreement, with far less negotiation and lower transaction cost each time.
- Commercial: longer lock-in, larger deposit, tenant-specific fit-outs.
- Residential: shorter tenure, faster re-letting, wider tenant pool.
Tax and financing differences
Renting commercial space is a taxable supply of service under GST when the landlord crosses the registration threshold; renting a residential dwelling to an individual for residential use is exempt, with specific rules where the tenant is a registered person.
Loans for commercial property generally carry higher rates, lower loan-to-value and shorter tenures than home loans, which changes the cash-flow maths substantially.
Risk profile
Commercial vacancy is lumpy: units can sit empty for months, and a business tenant's failure removes the whole income stream at once. Residential vacancy is shorter but the income per unit is smaller.
Location logic differs too. Commercial demand follows business clusters, transport and parking; residential demand follows schools, workplaces and everyday amenities.
Frequently asked questions
- Is GST charged on commercial rent?
- Yes, renting immovable property for commercial use is a taxable supply once the landlord is liable to register under GST. Residential letting to an individual for residence is exempt, subject to specific conditions.
- Are loan terms different for commercial property?
- Generally yes — expect a higher rate, a lower loan-to-value ratio and a shorter tenure than a residential home loan.
- Which is easier to exit?
- Residential, usually. There are more buyers and more comparable sales, so pricing and closing tend to be faster.