Property Hunter Magazine October Issue 2014 | Page 86

/// Banking and Investment News

Eight Tips for Buying a Resort Residence

Tax Evaders to Be Barred From Leaving Country Until They Pay Up
treat the due diligence process as
a fresh purchase, conducting all
necessary checks relating to the
value and legality of your property.
It is important to look at how the
access roads around the resort link
to a public road. You should also look
at utilities meterage; the position
of transformers; and ensure that
the M&E and infrastructure for the
residences is operated transparently.
4. Check the service charge rates and
their potential for change

A leisure property under construction in Port Dickson

Why buying into a hotel or resort
requires special considerations
There is no ‘one size fits all’
method of analysing mixed use
r esidential and resort operations.
Some have distinct residences
separate from the hotel, while
some are indistinguishable from
the hotel or resort. Certain branded
operations have a commonality,
as their structures generally follow
their corporate standards. If you
have never bought a property for
investment purposes in a hotel /
resort, ensure you talk to a lawyer
who has actually guided purchasers
through the process, and seen
the positives and negatives arising
out of managed operations. In the
meantime, these eight tips cover
eight issues you should be aware of.
Legal Analysis Resorts June 2014
1. Understand how branding works
and how it affects your investment
Many hotel assets are owned by local
owners and local companies but
are ‘operated’ by a brand. Often, the
owner of the hotel will build adjoining
residences with the knowledge that
they have secured a branded hotel
operator to manage the assets. The
management agreement between
the operator and the owner may
extend to looking after and servicing
the residences, but sometimes that is
not the case.
You must be aware that the
relationship between owner and
operator can affect your individual
investment, as you will have no direct
relationship with a hotel operator as
an owner of a unit in the residences
section of the hotel. Conduct your

86

www.PropertyHunter.com.my

calculations of rental return and
consider capital appreciation and
capital depreciation risk in view of
this. You should ensure that you
obtain independent legal advice and
that you do not seek advice from a
law firm or consultancy that mixes
commercial advice with legal advice.
It is imperative that your contracts
are vetted independently.
2. Plan your future re-sale at the time
you acquire
If the documentation you receive
is prepared professionally and the
seller has set up processes in the
contracts under which you could
assign your legal interest in an
efficient manner, this significantly
improves the marketability of the
property. In particular, where there
is a rental return guarantee or rental
income split, you should consult with
your adviser on any matters which
might hinder such being assigned.
Look carefully at the mechanism of
a sale or assignment and any fees
you might be liable for so you can
consider this when negotiating your
sale price.
3. Check the property, but also the
surrounding hotel land and access
ways
There is a mistaken assumption
that if your property is in a resort or
hotel environment, the land title and
the legal access ways will already
be in order. Exercise caution and
avoid making assumptions. Branded
operators are interested in ensuring
they control the hotel asset, but if
the branded operator is not the
seller of the residences and the
hotel owner and original developer
of the hotel is, then you should

As an owner placing your unit
back into a resort of hotel rental
pool, you will be aware that guests
will not know that your unit is
privately owned. They will use your
unit as if it were part of the hotel.
Therefore, the service charges billed
to your account, depending on
the commercial arrangements for
the revenue split with the owner/
operator, should be at a fixed level
so that you can compute this charge
in your calculation of return on
investment. The contract referring
to charges should be reviewed for
potential changes, terminations,
notice periods and other pertinent
matters, which might affect your
investment.
5. Look carefully at your usage rights,
‘subject to availability’ and priority for
bookings
If the residential element of a resort
or hotel is planned properly, the
operator will be aware of the number
of ‘blackout dates’. However, to run
the operations effectively, the dates
should be agreed far enough in
advance so as not to conflict with
advance bookings. Key prime room
rate periods should generally not be
available. If you do wish to secure
particular dates of use for your unit
when it is not being used in the
rental or hotel program, you should
ensure this is placed very clearly and
unambiguously in the contract. Some
operators will decline to allow you to
insist on certain dates because they
are trying to maximise your return
and theirs during peak periods.
6. How often will you be charged
for capital renovations, common
area renovations and for any
Furniture Fixtures and Equipment
replacements?
When you buy your unit, an initial
furniture pack may be included in the

package. Beyond that, the operator
will look to the hotel asset owner
to ensure the hotel is updated. The
hotel asset owner may pass the
costs responsibilities of some of its
obligations towards the operator
onto you, the owner of a unit. If that
so, you need to look very carefully
about the provisions for regularising
the frequency of such costs, as this
can eat into your ROI projections.
It is true that the unit must be
kept up to the standards of the
hotel operation to ensure usability
and that the hotel is operated in
accordance with the brand standards
of the hotel. However, how the costs
are apportioned between the hotel
asset owner and individual unit
owners requires scrutiny and an
understanding of industry norms.

the investment for you in a way that
allows you to make a proportionate
return. However, if the returns do not
materialise or the hotel is operated well
but the occupancy and room rates are
affected by extraneous factors, you will
be sharing in the downside on such
risks with the other parties. In such
circumstances, other than to sell your
unit without much upside, then your
options are limited.

7. Understand penalties and
remedies that affect your unit,
bottom line and security of
ownership

(b) if the operations are handled
negligently; with gross negligence or
willful misconduct (not all of these will
necessarily apply depending on the
contracts and jurisdiction)

If you are purchasing a resort or
hotel unit, you may be considered
an investment-style purchaser, as
opposed to a pure consumer, in
many jurisdictions. If so, you may
not be afforded the same potential
protections which ordinarily
make unfair provisions void when
consumers are involved. T his means
that penalties applicable for failing to
meet obligations—such as payment
of fees and expenses due on the
property and the upkeep of the
property in accordance with brand
standards— may be more severe
than would apply to consumers.
Look at the contracts and focus
on all provisions that set out the
consequences of a failure to your
obligations. What are your potential
losses in such circumstances?
Importantly, could your actual
property right—if this is a ‘leasehold’
right—be terminated? What are the
interest penalties on overdue sums?
Does the operator have a right
of entry to your unit, and in what
circumstances?
8. Understand the risks of the
investment not performing and
your potential legal and commercial
options
If you have invested into a resort
property, then you have taken a risk
in relation to your belief that the
operator can perform and that the
overall asset owner has structured

However, there are circumstances in
which you would have legal rights if
the following matters have affected
your investment, with varying degrees
of applicability, depending on the legal
jurisdiction:
(a) if what you have bought was
misrepresented to you

(c) if there is fraud or deceit
(d) If there is breach of a guarantee—
such as a guaranteed rental yield or
return on investment
When you enter into your contracts, you
should be aware that your options to
‘sue’ for a breach of performance by the
operator / asset owner are exceptionally
limited, and that if there is clear breach
of obligations or laws, you also have to
deal with the difficulties that a country’s
legal system may present. Some resorts
are in very nice remote tropical areas,
but may also be under a lethargic and
unpredictable legal system. It pays to
understand what the limitations on
your rights are before you encounter a
scenario in which you wish to test those
rights.
Resort properties offer clear investment
returns for savvy investors. Instead of
taking a risk on the standard residential
letting market, by buying into a resort,
you are making your investment
contingent on guests and the operation
of that hotel. This means the manner in
which you conduct due diligence; review
contracts and choose your advisers will
be different to that which would apply to
a standard residential acquisition.

Kenneth Chin was flying in to
KL International Airport 2 from
Australia on Aug 15, a trip he has
been making regularly for the past
five years, when his passport was
barred at an auto-gate.
He checked at a counter – and
found out that he had been
blacklisted by the Inland Revenue
Board. He is one of thousands who
now have to settle the matter or
they cannot leave the country.
The IRB is on the hunt. Tax evaders
– even those owing as little as
RM200 – are being barred from
leaving the country until they have
paid their dues.

any Commissioner of Police or
Director of Immigration a certificate
containing particulars of the tax,
sums and debts so payable with
a request for that person to be
prevented from leaving Malaysia
unless and until he pays up,” she
said.
The authority to issue a stoppage
order, or to blacklist a tax defaulter
from leaving the country, is granted
to the IRB under Section 104 of the
Income Tax Act 1967 (Act 53).
The law allowing the IRB to do this
has been in the books since 1967
but active enforcement has only
been done in recent months.

The officers have been very
busy in the last few months.
This year alone, the IRB has
successfully recovered RM8.37mil
(RM8,378,871.48) from those who
had been planning to leave the
country.

Nor Azirah gave an assurance
that tax offenders would not be
held in detention at Immigration
checkpoints but if the offender
wished to continue on his or her
journey, the person is expected to
pay all liabilities.

The IRB has engaged the support
of the Immigration Department to
enforce the travel “blacklist”.

Income tax from qualified citizens
forms a substantial portion of the
country’s income, with the amount
being on the increase every year.

“Whether the purpose of leaving
Malaysia is for leisure, business
or migration, the no exit order
will apply to all tax offenders,” IRB
corporate communications director
Nor Azirah Mohd Said told The
Star.
“The law explicitly says the IRB
director-general may issue to

The IRB is chasing after 97,343
defaulters to get them to settle
an accumulated unpaid tax
totalling a staggering RM2.88bil
(RM2,886,891,630.59). This year,
8,332 new names were added, with
cumulative unpaid taxes totalling
RM162.97mil (RM162,971,207.33).

Offences under a tax gap may
occur in several forms, including
non-payment or a deliberate
avoidance of tax, as well as a false
declaration of income tax returns
which results in an under-payment
of taxes.
Under the Act, any person who
is found guilty of failing to furnish
an income tax return may be
liable to a fine of between RM200
and RM2,000 or a jail term not
exceeding six months or both.
Any person who makes an
incorrect return by omitting or
understating income received may
be brought to court and, upon
conviction, be liable to a fine of
between RM1,000 and RM10,000.
The offender may also be liable to
pay a special penalty of double the
amount of undercharged tax.
Tax defaulters get a rude
awakening at the airport.
Concerned that you may get your
holidays disrupted by being barred
by the Immigration Department
from leaving the country?
Here’s an easy way to check your
travel status: click on this link to
find out! http://sspi2.imi.gov.my/

www.PropertyHunter.com.my

87