GRRrrr...
FEATURE STORY
A Roar to be cautious
By Gunaprasath Bupalan
Since it was recently brought to my attention once again, I have decided to send out a caution
reminder to readers at large. House buyers must be wary of the so-called ‘Guaranteed rental returns
‘GRR’ scheme that has been going on for ages now.
Especially in the current market sentiment, lots of developers would try to entice inexperienced
house buyers with this impressive offer. Even though some may be genuine; you need to throw
caution in the wind with many of these offers.
You should always remember that GRR schemes are not governed by the Housing Development
(Control & Licensing) Act. Even though the sale and purchase agreement (SPA) is covered by the Act
and its Regulations but the GRR scheme is not, meaning that the Housing Tribunal has no jurisdiction
over this.
Over the years, we may have come across massive advertising by many developers, enticing
them with statements such as guaranteed leasebacks, buy-to-let, or some even bold enough to use the
terms own-for-free. The deal clincher here is that the developer agrees to pay buyers rentals ranging
from eight per cent to 12 per cent per annum or a proportion of the purchase price for a certain
length of time.
Sounds good, doesn’t it? So, what could actually be the problem, you may ask.
While GRRs could be very attractive, investors need to understand the simple fact that nothing
is as easy as it seems. Similar to that email that most of us have received at least once in our adult life,
where someone has deceased and you have been chosen to be the heir to the deceased throne. GRR,
in most cases is a very strong and attractive sales and marketing gimmick.
Let’s take a minute to imagine a scenario. If a developer is offering GRRs, you as the potential
buyer have no way of knowing whether that property is going to achieve the promise in the open
market, unless he or she, or your good self owns a magical crystal ball that can show you the market
conditions in the next 10 years.
What guarantees that the property may not even be let out during the guaranteed period?
You have no way of knowing whether a GRR property is going to achieve the promise in the open market,
unless the developer owns a magical crystal ball that can show you the market conditions in the next 10
years.
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