An expert is advising people who are considering to invest in properties backed by guaranteed rental returns (GRR) to act with caution as these schemes are not under the purview of the Housing Development (Control & Licensing) Act, reported The Sun Daily.
“The sale and purchase agreement (SPA) is covered by the act but the GRR scheme is not. Thus, if there is a case it will be brought to the civil court,” explained Chang Kim Loong, Secretary-General of the National House Buyers Association (HBA).
Earlier this month, a group of investors filed a class action suit against a serviced apartment project that comes with a GRR scheme. Known as The Arc @ Cyberjaya, the project was marketed by Andaman Property Management and built by Meda Inc’s wholly-owned unit Maju Puncakbumi.
The buyers were guaranteed a gross rental income of eight percent per annum for either three and four years. They were also shown an agreement that Multimedia University would lease the units. But after one year, many investors stopped receiving rental income as far back as March 2016.
However, such cases are not worth pursuing given the high legal costs. In addition, the Housing Act only regulates property developers, not the firms which marketed or offered the GRR schemes, which is usually a subsidiary or marketing firm that oversees the rents.
“There have been cases in the past filed by individual owners. There have been a handful of cases over the years but while some of these individuals won, these cases were against shell companies. These owners only won a paper judgment,” noted Chang.
Although some plaintiffs have turned to Tribunal for Consumer Claims, the maximum amount they can only get is RM25,000 from the independent body formed under the Consumer Protection Act 1999 to settle consumer complaints.
According to CBRE-WTW Managing Director Foo Gee Jen, such schemes are typically offered when developers are struggling to entice buyers.
“It is one of the ways for developers to attract buyers and give some assurance to recoup their instalment. When you see such schemes being offered, it is a sign of a weakening market. In a booming market, I don’t think developers would be willing to offer guaranteed rental returns.”
He explained that GRR schemes are typically offered for investment properties with recurring income like hotels, resort properties, student accommodation, SoHo/SoVo units and serviced apartments.
“My advice is to be cautious when considering such propositions. Are you paying the market price or developer’s selling price? It (GRR) is mostly factored in (the selling price),” added Foo.
Image sourced from prairievillelahomesforsale
Radin Ghazali, Content Writer at PropertyGuru, edited this story. To contact her about this or other stories email email@example.com