From JH, a viewer who wrote in by email
JH has booked a 360 sq ft unit for RM700,000 in a hotel-run project near Genting Highlands. The developer guarantees a 7% return for three years, enough to cover the instalment and management fees with about RM1,000 a month to spare. After that, investors share 70% of the hotel profit for six years, and the operator handles utilities, furnishing and a refurbishment every three years.
He worries about the narrow access road, the operator choosing not to renew after nine years, and another pandemic. Is this kind of investment worth it?
“I'm not a huge fan of GRR investment property.”
Stay away unless it is a third or fourth property you can afford to lose. The guaranteed return is your own borrowed money paid back to you, the price is inflated, and the hotel operator is your only way out.
Why
The guarantee is built into the price
A guaranteed rental return (GRR) is usually loaded into the sale price. A unit worth RM500,000 might be sold at RM700,000; you borrow the extra RM200,000 from the bank, and the developer hands it back to you as "returns" over three to five years.
You are paying city-centre prices for Genting
RM700,000 for 360 sq ft is about RM1,944 per sq ft, around what KLCC and TRX projects cost and more than Bukit Bintang. For short-stay rentals, the city centre also draws far more visitors than a tourist spot.
There is only one way out
A good investment property can be let long-term to families, short-term to expats, room by room or on Airbnb. This one only works as a hotel. If the operator walks away, as several did during the pandemic, you cannot live in it, rent it to locals or easily sell it, because buyers only want it for income it no longer makes.
The real return is thinner than 7%
Take off about 4% loan interest and roughly 1% in operating costs, and the margin is closer to 2%. Hotel use wears a building fast, so maintenance only rises. The operator is on a service contract it can leave after five years while your loan runs for 35, and business terms outside the sale agreement are not government-regulated.
What to do
- Work out the price per sq ft and compare it with prime city projects before trusting a guaranteed yield.
- Ask what you would do if the operator left: could you live in it, rent it to locals, or sell it?
- If you fear not finding tenants, buy below your limit instead. Sean suggests that someone approved for RM600,000 buy around RM480,000, so six empty months are survivable.
- Keep your first two properties conventional; treat a scheme like this only as a third or fourth you can afford to lose.
- Compare it with simpler options: fixed deposits, an index fund, or KL rentals yielding 5 to 6%.
Editorial Note: Summarised from Sean Tan's full episode. The quoted answer is in his own words; the rest is our paraphrase. Figures reflect the recording date, so check current rates and rules before acting on them.
ASKING SEAN #259 | THE REALITY OF GRR (GUARANTEED RENTAL RETURN) SCHEMES
Sources & Verification Data
Summarised from Sean's full English captions for Asking Sean #259. The quoted answer is verbatim; everything else is paraphrased. Scheme terms vary by developer, so read the actual agreement before relying on any guarantee.
