Be cautious over guaranteed rental return schemes, property investors told

PETALING JAYA: Property investors who are considering guaranteed rental return (GRR) schemes, which promise a fixed rental income for house buyers for a certain period of time, should proceed with caution as such schemes are not governed by the Housing Development (Control & Licensing) Act.
“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,” National House Buyers Association (HBA) secretary-general Chang Kim Loong told SunBiz.
Two weeks ago a group of house buyers announced a class action suit against one such GRR project. The case involves a serviced apartment project named The Arc @ Cyberjaya developed by Maju Puncakbumi Sdn Bhd, a wholly owned subsidiary of Meda Inc Bhd, and marketed by Andaman Property Management Sdn Bhd.
The project came with two types of schemes, one for up to six years and another for up to 25 years with a gross 8% rental income per annum for the first term, of three and four years respectively. Buyers were given an option agreement to sign for the GRR scheme when they signed the SPA. They were also shown a copy of a memorandum of understanding signed with the Multimedia University to rent the units at The Arc. Unfortunately, many buyers stopped receiving their rental after a year, from as far back as March 2016.
Despite serving letters of demand and, later, two collective notice of demand for two groups of buyers, which were ignored by the developer and the marketing firm, the affected buyers decided to initiate legal action and have since filed a class action suit in an attempt to claim the rentals owed to them.
In most cases, Chang said, the GRR scheme is not offered by the property developer but by a subsidiary company or a marketing company that manages the rentals and while the Act regulates the property developer, it does not regulate the other firms.
In the past, he said, there had been cases of such companies not honouring the GRR schemes and many buyers approached HBA to seek advice. However, the cases were not worth pursuing due to the high cost of taking legal action.
“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,” he added.
While some investors may approach the Tribunal for Consumer Claims, the total amount that can be claimed is capped at RM25,000. The tribunal is an independent body established under the Consumer Protection Act 1999 to hear and determine claims filed by consumers under the Act.
CBRE-WTW managing director Foo Gee Jen said GRR schemes generally “grow” in a cycle, when the market is in a challenging environment.
“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 said.
GRR schemes are applicable for investment properties, mostly for the recurring income. It is most often offered with hotel or resort properties, SoHo/SoVo units, student accommodation and some 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),”said Foo.
He said such schemes have been around since the mid-1980s and one such project where the scheme worked out was Century Mahkota by Lion Group.
“I would not say it is a great success but they were able to deliver. It is still ongoing. One reason is that Malacca is a tourism hotspot, thus the group was able to sustain. The scheme was for seven years which was fulfilled and subsequently on a yearly basis,” he added.