Lured by the provoking advertisements, once purchased, don’t
forget that there are other costs attached to this purchase.
Be smart.
We all know that a typical
mortgage lasts 20 years on average. If you are
offered a guaranteed rental return for just three
years (which is the most typical offer under
these schemes), you may be able to enjoy free
instalments (as rental should take care of your
mortgage to the bank) during this period, but
what will happen for the next 17 years? If there
is no more GRR at this point in time, and you
are unable to fetch rental, you will have to start
servicing the mortgage to the bank personally,
unless you are able to dispose of the unit within
the three-year span – a noble idea, but not an easy
solution.
If you decide to sell, you may also be limited
to buyers who will also be mainly investors. You
may be subject to competition amongst other
developers who are offering higher rental returns
with new developments.
Lured by the provoking advertisements,
once purchased, don’t forget that there are other
costs attached to this purchase. You will have
to take into account legal fees, stamp duties, the
cost of maintaining the property, the taxes that
come with being a property owner, quit rent and
assessment tax, maintenance and sinking fund
cost and other areas too.
As mentioned earlier, the Housing
Development Act does not recognise these
schemes, hence law does not regulate the terms
and conditions in GRR agreements. As such, most
buyers may not understand that the fine prints
are often written in the guarantors’ favour. Most
of the time with a clause statin that the developer
reserved its right to terminate the GRR agreement
for any reason whatsoever by giving two months
written notice to the purchaser.
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This equates to the developer’s obligation
to pay the GRR to the purchaser shall cease from
the date of termination. So, you could actually be
left in the dark if you do not read the terms and
just sign on the dotted lines.
As far as the Housing Ministry is concerned,
these GRR Contracts are between the buyer
and the developers/ their subsidiaries/ hotel
operators/ service provider and the Ministry has
no role here to regulate them.
Despite all the above, GRRs are legal as
it is looked at as a document signed between
two consenting parties and their terms and
conditions are within an actual contract. Always
seek your independent council and not rely on
the ‘free-legal-fees’ (another marketing gimmick)
offered by the developer. It is always better to
have someone at your side, rather than one that
is sitting on the fence or leaning away from the
buyer.
In conclusion, personally, I feel that GRRs
could be very attractive to a purchaser, but
before making that decision to sign on the dotted
lines, proper and thorough independent research
should be conducted. If the proposed rent is
higher than the current market conditions, red
flags should already be raised.
In my many years writing about the
property industry, I have never come across
any individual who could actually vouch for
guaranteed rentals. Real estate in a whole, or
even as a business always has its ups and downs.
So, advance with cautions, think with your brain
and not your emotions when it comes to any
guarantee on investment.