Insurance offers protection, savings

18 July 2007, By New Straits Times
KUALA LUMPUR: Less than 40 per cent of Malaysians have insurance protection. Domestic Trade and Consumer Affairs Minister Datuk Shafie Apdal said this was because many did not realise that insurance not only provided protection but was also a form of savings. "This savings element can be used to meet future financial demands such as for education and family needs," he said at the launch of the National Insurance Association of Malaysia’s whole life insurance policy "Bijak Malaysia". The policy offers insurance coverage up to the age of 88 years against death as well as total and permanent disability due to natural and accidental causes. It will be sold by nine banks: Alliance, AmBank, CIMB, EON, Hong Leong, Maybank, OCBC, RHB and United Overseas. NIAM chairman Sonny Tan said: "Bijak Malaysia will be offered by the banks. "This is in line with the government’s effort to improve the insurance penetration rate through banks." Bijak Malaysia’s policy offers four plans with RM100, RM200, RM300 and RM500 monthly premiums. Tan said: "Usually, insurance policies have a fixed sum assured but in this case, our premiums are fixed." Since its soft launch in mid- June, total premium revenue for Bijak Malaysia was more than RM1.5 million from 2,000 policyholders. The two popular plans were the RM100 and RM200 plans. NIAM Bancassurance committee chairman Koh Heng Kong said they expected an annual premium revenue of RM50 million. The entry age for the policy is from 30 days to 53 years and policyholders will stop paying premiums after 55. On top of receiving the full sum assured upon maturity, there is a guaranteed cash payout every three years at five per cent of the sum.

Henry Butcher unveils new website

In conjunction with Henry Butcher Malaysia Sdn Bhd’s 20th anniversary, the real estate agent company has unveiled a new look for its website – www.henrybutcher.com.my.
Jul 9, 2007

In conjunction with Henry Butcher Malaysia Sdn Bhd’s 20th anniversary, the real estate agent company has unveiled a new look for its website –
www.henrybutcher.com.my.

According to director Long Tian Chek, the new website is easier to use, more informative and boasts a more polished feel.

Visitors to the website are also able to read up on updated news on various topics such as property reviews, articles and market snippets as well as media releases, exhibitions and seminars related to the real estate and property industry, in addition to upcoming auctions listings.

“The website will be constantly updated to keep you informed of our services, track records and contacts,” he added.

Investment - Beware of guaranteed rents

Guaranteed Rental Returns, buy-to-let, leasebacks, buy-to-let, cash back, own-for-free - you may have been tempted by these catch words, but how good are these deals in real term and will there be any rental demand once the guaranteed period is over?

There are many developments to woo investors with guaranteed rental returns and equally many investors have found to their dismay that the returns are not what they have envisaged.

The plan

Guaranteed rental returns (GRR) plans which have become increasingly common, judging from the press advertisements may sound enticing to investors who do not want the trouble of managing their own investments. You buy the property, and you get the rental returns thrown in with some additional perks like free stays.

Developers would agree to pay buyers rentals ranging from 8% to 12% per annum or a proportion of the purchase price for a certain length of time

While GRR could be very attractive, investors need to know that the scheme is not as simple as it seems, much like advertisements that appeal to our desire to lose weight quickly, get rich fast or strike the lottery.

Generally, GRR are best for the laidback investors. Some people will value the 'simplicity' of the deal. However there are issues that buyers have to be aware of and comfortable with before entering into such agreements.

Pitfalls

If a developer is offering GRR, the buyer has no way of knowing whether that property is going to achieve the promised in the open market. The developer may not be able to get the guaranteed rent or the property may not be let out at all during the guaranteed period. Guarantees are often used to market properties that otherwise would not sell and many investors are shocked by the resulting drop in income when the developer is unable to continue with the scheme or worst fail to complete the project.

In addition to this, it is often the case that investors end up footing the rental bill themselves, when developers inflate the price of the property to cover the guaranteed rent. This can provide a further shock when the investors try to sell the property and realise that it is not worth as much as they originally paid for it.

* A typical mortgage lasts 20 years. If you have a guaranteed rental for just three years, what will happen for the next 17 years? You are left to sink or swim on your own.

* A typical table of returns will show potential buyers a surplus income. A potential investor has to take into account the cost of maintaining the property, the taxes that come with being a property owner, the cost of maintaining the mortgage and all other fees related to acquiring the property.

Illustration: A typical GRR scheme's table of 'returns' may look like this:

Selling Price	RM320,000.00
10% Downpayment
Loan	RM288,000.00
Loan Period	30 years
Interest on Loan	6.25%
Monthly Installment	RM1,773.27
Gross Rental Return @ 8%	RM2,133.33
Surplus to Buyer	RM360.06
Total Surplus Per Year	RM4,320.72

Under most GRR scheme, you will need to buy a furniture package with the apartment and commit yourself to the management charges and sinking fund of the building, on top of the regulatory quit rent & assessment tax. These will often take a substantial bite out of any rental money left each month.

* GRR are specifically aimed at selling units to investors, so you may see a situation of 500 apartments all going to the rental market rather than owner-occupiers at the end of the scheme. You will need to consider how many people will be chasing tenants at the end of the guarantee period and most particularly how many prospective tenants there are. In areas of high competition, landlords will have to reduce the rent to attract available tenants. Consequently, the market value of the properties will go down rather than up. If you decide to sell, you will also be limited to buyers who will also be mainly investors. Sellers will also find themselves competing with developers who are offering higher rental returns with new developments.

* Overpricing - When supply is more than demand, developers always look for ways to avoid having to reduce prices. While GRR may offer attractive secure returns, it will be a false economy in the long run if the buyer ends up overpaying for the property.

* A guarantee is only as good as company who underwrites it. Even if the GRR seem reasonable and are offered with honourable intentions, investors need to be sure that the developer would be able to sustain the returns if the rental or sales market were to take a turn for the worse. If developers were to default on the payments due to buyers, these buyers will likely default on their respective loan repayments, thereby setting off a chain of events with dire consequences.

* Terms and conditions in GRR agreements are not regulated by law. As such, the inexperienced investors may not understand that the fine prints are often written in the guarantors' favour. Example of such clauses: "Provided always and it is hereby agreed between the contracting parties hereto that the Developer reserves its right to terminate the GRR agreement for any reason whatsoever by giving TWO (2) MONTHS written notice to the Purchaser wherein such a case the Developer's obligation to pay the guaranteed return to the Purchaser shall cease from the date of such termination. Such notice is deemed to have been received within three (3) days from the date of the letter".

A wise investor should check the small prints for any hidden clauses that enable the developer to avoid paying the guaranteed rent and it is always a good idea to seek expert advice.

Buyers Beware

The rental market is volatile, depending on current competition and market conditions. People investing in these schemes are not just buying properties that they hope will increase in value in time, but also using 'other people's' money (from rentals) to pay for the purchase. It is, however, a cyclical market, and one is subject to the laws of supply and demand as in any other sector of the economy.

Guaranteed rents offers should be checked carefully against the local market and competition. A simple survey within the location will give an investor a fair idea of the state of the local market. If market prices are lower than the proposed rent, incentives and discounts being offered to woo the buyers, then this are issues to be considered. If guarantees of rentals are higher than the existing market rate, then a rent decline after the end of the guarantee is likely. It is a classic case of caveat emptor - rental guarantees can sometimes guarantee investors nothing but heartache.

The National House Buyers Association (HBA) is a voluntary, non-governmental organization manned by unpaid volunteers. For more information, check out their website at http://www.hba.org.my

by, http://iproperty.com.my/articles/bewareofguaranteedrents.asp