Property investment: It’s not always rosy.

I think I read about this development when I was still working in Penang. At the time, I was also attracted by the Guaranteed Rental Returns (GRR) that they were offering. I am talking about Hotwer Development’s The Boss project in Klang. Recently, I read about it again and this time, it’s bad news. The project has stalled and all the 300 investors who bought are now left with an uncompleted building. The project has been abandoned halfway. The Boss is a high-rise residential hotel suite with commercial space and was sold for between RM250,000 and RM900,000. Many of the buyers bought after seeing the roadshows in popular malls in the Klang Valley. The developer also went to market their properties in East Malaysia too.
hotwerAccording to a report in The Star, most of the buyers were from outside Klang. Latest situation seems better, that a liquidator has been appointed by the Kuala Lumpur High Court. A meeting was also held and The Boss Purchasers Association (TBPA) vice-president Heng Hock Lai said the meeting had been fruitful. Chances are, the project should be revised soon. He said, “We believe the new contractor will be able to complete the project without adding more costs to us.” Based on the interviews by the daily with some of the buyers, majority were buying because they were attracted by the generous promise of returns; GRR. In fact, one of them used cash to buy which meant if the project is not revived, they would lose everything. One said that he was attracted by 7.5% and 8% monthly returns from the developer!
I always believe many developers go into property development because they want to be in the business for a long time. Thus, even newer developers who are serious should be a good developer after a few projects. However, let us be very objective in whatever we buy. If the GRR being offered is way too high compared to those in the market, we should be wary. Better be safe than sorry. Yes, I would personally let go off this opportunity to earn big money. Secondly, it may be better not to put all our eggs in one basket. While buying with all the cash we have can save us interests, it also meant that the risks are suddenly much higher because we may lose everything. For those who are still servicing their loans to the banks, at the very least, it’s on a monthly basis and not a huge chunk of money gone just like that. Last but not least, there is no such thing as ‘sure earn money’ from property investment. Truth is, nothing is always rosy. I wish the project would be revived soon for the 300 investors of The Boss.
written on 1 July 2015
Next suggested article: Why scratch your own face? Case of established developers


Comments

  1. Hi Charles,
    This is indeed a very terrible case for us to hear. If I’m one of the buyer, I don’t know how sorrow I am now. This is one of a strong case why we should only buy from a very well known developer. But how can we do that all the times? And this culprit developer has made a very attractive ads than the good developer. I always thought of the below action if I had the authority 🙂
    a) Stern action including jail mandatory to the managing director or ceo or director. In the past case they escaped easily while trapping the buyers with bad debts and bankruptcy order. They even can set up a new developer company. The company they left of course didn’t have much money or asets to sell anymore. The only building was uncompleted with no value.
    b) Developer only can sell if the development is 50% completed. In the past, there had been a proposal whereby the developer had to ‘complete then sell’ but the proposal was going nowhere. I think we can work on the percentage amount if we are serious to stop this re-occurrences.
    c) Rate the developer like we are rating the restaurants with A,B,C and D(notice to close). At least the buyers are aware of the risk they are taking to buy with certain developer.
    d) When I look at The Boss high-rise, it seems like the building’s design and supporting components was like fragile (waiting to collapse building haha). Maybe the project stalled because of the architect didn’t want to approve the design and material used to build it. So this must be made to public in order for us to know what’s really had happened.
    e) The developers must be banned from stating the GRR in their ads. The ads also must be in a standardized format to all developers in Malaysia. It should only state the building plan, artist impression without the fake scenery and developer’s details only. So that the buyers can justify themselves why they are buying the property without bias to another project.
    f) Buyers-developer meeting should be held quarterly so that they can share the problems arise from both parties. This also served the red flag sign if the developer’s cash flow is not smooth enough and buyers also can see the project progress.
    Charles, I can list down a whole lot of steps to be taken to minimize the case to re-occur, but if the authorities keeps on silence on this unfortunate incident, the case will keeps on happening in the future. Just pray that we are not going to be the one..

    1. Hi Im, actually until today, many buyers are buying because they believe what the developer is promising. Truth is, number of failed projects these days are minimal. That’s main reason why they believe. As for buying only from established developers, of course this is preferred but most of the time, their projects carry some premium. Thus, we may get a better deal with new developers. I agree totally on the stern action against the MD of the company. This will serve as a warning to all. It should be like treated like a criminal case. As for build then sell, I am neutral on this. There are actually pro and cons from both sides. Truth is, there are already some developers who are doing this, build then sell. Rating is good thing but haha… this would be tough. I think reading online should be good enough these days, unless the developer is a totally new one. For GRR, I seriously believe the buyers must be wary themselves. Come on, how can that project give so much. If it could, why would the developer bother to sell? They might as well just build and get the returns themselves! Note that the usual net margin for listed developers are only 15-20%. If GRR can give almost the same, why build and sell. Why not build and lease and get higher returns year after year? Can list down the steps? Send to me at kopiandproperty@gmail.com I would love to publish this and give full credits to you. We should continue sharing so that these kind of incidents do not happen in future. Thanks im.

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