Everyone likes certainty. So it’s understandable that you could be tempted by the idea of a Guaranteed Rental Return Scheme (GRR).
The GRR scheme is a unique type of buy-to-let offer, where owners purchase from developers and they’re assured of a passive income, in the form of monthly rentals.
Essentially you buy a GRR property from the developer, and they promise they will rent it out on your behalf, then deliver the income to you.
This income typically is promised at a range of 8%-12% of the purchase price annually. This offer can be particularly attractive for overseas investors.
They’re provided the opportunity to purchase property and receive income from rent, without the burden of having to manage the property themselves.
Are There Risks With GRR?
These schemes offer the promise of guaranteed rental income for buyers over a specific period of time from their GRR property.
A guaranteed rental income probably sounds like a great idea for any ambitious property investor. But you should always be cautious of a deal that sounds too good to be true!
While the GRR meaning includes the word ‘guaranteed’, there’s no certainty about such a scheme. GRR property in Malaysia has an uncertain history of success.
That’s not to say it can’t be a valuable opportunity for some investors, but you need to be aware of the risks too. The National House Buyers Association (HBA) has its own concerns about these schemes.
Since GRR is often administered by a third-party marketing or subsidiary company, the legal protections become far less certain.
In 2017, a group of buyers at a project called The Arc @ Cyberjaya began legal action against this GRR scheme.
The scheme was developed by Maju Puncakbumi Sdn Bhd, a wholly-owned subsidiary of Meda Inc Bhd, and marketed by Andaman Property Management Sdn Bhd.
The HBA highlighted how the agreement signed under the scheme promised to deliver rental returns which were unfulfilled.
The marketing company ignored several letters of demand, despite some owners not receiving rental incomes since 2016.
This case raises an important point — rental income from GRR can vary. Not all developers have the required expertise to market, manage, and rent a property successfully.
If they are unable to rent your property, you’re unlikely to be paid the supposedly ‘guaranteed’ return.
How Does The Law Apply To GRR?
A Guaranteed Rental Return Scheme is not covered by the Housing Development (Control & Licensing) Act.
This important piece of legislation provides oversight for the control and licensing of housing development in Peninsular Malaysia.
It not only sets out legislation protecting homebuyers. but has a defined tribunal process for disputes and claims.
Property sold by developers would be covered under the ACT as per the Sale and Purchase Agreement (SPA).
However, the majority of GRR schemes are operated by third-parties. That means any dispute around a GRR agreement will need to be tested in a civil court.
What To Do If You Lose Out To GRR?
Unfortunately, accessing returns on GRR is extremely challenging if you’re unlucky enough to lose out.
Since complaints must progress through a civil court, they often come with a substantial legal cost.
Class action law suits, where many claimants work together and split legal costs, can be an option in certain circumstances.
There is a potential avenue for some compensation through the Tribunal for Consumer Claims as part of the Consumer Protection Act 1999.
However, the maximum claim under this method is capped at RM25,000.
Things To Consider When Considering A GRR Property
There are some real reasons to be cautious about GRR schemes, but a relaxed investor who wants a simple approach to rental income might still look on them positively as an option. Here are some key points to consider:
- Likely not covered by Housing Development (Control & Licensing) Act – Legal protection is often limited due to the way these schemes are run by third parties.
- No guarantee of return income – If the developer fails to rent out your property, then you’re unlikely to see those ‘guaranteed’ rental returns.
- Expiry of guarantee period – If you’ve taken out a home loan for your property that covers 20 years, but the GRR scheme ends in just five years, you’ve got a significant shortfall in rental planning. You need to take into account the whole period of your home loan when thinking about a rental income on property.
- Additional ownership costs – Buying a property is just a start of your financial obligation. You also need to consider payments such as the quit rent, maintenance fees, and common charges such as sinking funds.
- Property sale considerations – The chances are you will one day want to sell your property. Since GRR property tends to cater for a particular investor and rental market, your pool of buyers may also be limited to similar investors.
Despite what the name might imply, do note that a GRR property does not always deliver a guaranteed rental return.
While some buyers might want to explore the option with respected companies, there should be a significant note of caution about whether they should proceed.
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