When banks finance real estate projects in Thailand, they are only responsible for financing the actual construction costs, construction and completion of the project. Therefore, any agreement on guaranteed rents, management or maintenance of homes and additional services offered to property owners or future tenants is the sole responsibility of the developer to provide them. You should also be aware that some developers ask for the purchase of packages of furniture that are not always included in the price on which the guaranteed return is offered. “So be sure to check the validity of the JRC agreement and the quality of the management team,” Yap says, “and, if possible, see how the management company arranges its finances.” The general conditions of sale in GRR contracts are not regulated by law. As a result, inexperienced investors may not understand that the fine print is often written in favor of guarantors. Example of such clauses: these rental yields are calculated by calculating the average daily rates in comparable neighboring properties taking into account the different high and low seasons associated with typical occupancy figures and taking into account the expected ROI in the developers` offer. Please be sure to check what is included in the rental guarantee and what is not, as in some cases the number actually received may be slightly less than the percentages indicated in the marketing materials. Liew explains that “generally speaking, the planned GRR is typically about 20 percent lower than the market rental price to protect the developer from losses – meaning that anything above 20 percent is probably too good to be true.” Too good to be true? GRR systems look attractive, with guaranteed returns and a capital increase that will be considered later on the street. Developers can describe these schemes as “buy-to-let”, “cashback” or “own-for-free” to increase their attractiveness and increase sales. In essence, a GRR system in which developers promise investors a guaranteed sum for a given period, which the units must return to the developer or property management company to be managed. Some real estate advisors describe the scheme as a “relaxed” real estate investment option – developers sell real estate as “hardware” and offer a guaranteed package as “software” to entice investors to buy. Chan Wai Seen, director of research and research at JS Valuers Property Consultants Sdn Bhd, says the GRRs currently offered are between 5% and 8% gross or net return on the purchase price.
“RSOs are considered attractive compared to the predominant borrowing costs of around 3.5% [based on blR-2%]. To some extent, they are able to improve revenue,” he adds. Many projects have worked well with such programs, Paul Khong, executive director of Regroup Associates Sdn Bhd, tells City & Country. These are usually projects in a good position in cities or resorts, which are implemented by large players with a reputation that should be preserved. He adds, however, that many have become bad too, as developers can`t fulfill their obligations due to misuse or rent for their products. In some cases, developers even shut down businesses and ran away. Finally, the buyer must consider whether the developer or his home management company actually has the ability and resources to properly manage the property and preserve the tenants of the property during the guaranteed period. “If the market matures,” Ea continues, “I hope developers will be less important to rents and strike a good balance between local buyers who will live in the property and those who will buy only as an investment.” Considering both sides of the debate over guaranteed rental yields, the rental guarantee is important for investors who need an immediate guarantee for their investment – but the guarantee is just the strength of the business it offers. . .