Lure of cash-back schemes
22/04/2003 theedgedaily.com By Maryann Tan

Buying a home or investing in property has never been easier, or tougher, depending on how you look at it.

Easier, because there are just so many housing projects to choose from and property developers are most eager to sell you that dream home, especially in a market where supply outstrips demand.

Yet, with the creative and sometimes unbelievable promotions tagged to the housing projects these days, choosing which property to buy calls for informed decisions.

From cash-back plans to guaranteed value appreciation, innovative ways to attract buyers are becoming commonplace.

"Developers are doing these promotions because the market is soft and they want to be different," says See Kok Loong, principal of Metrohomes.

A typical scheme that is becoming quite popular is the cash-back plan. The Country Heights Damansara project was the first to excite buyers with its Country Heights Innovation in Property Investment (Chipi) scheme.

Under the scheme, buyers are guaranteed a cash amount that's equivalent to the purchase price after 35 years.

Obviously, being able to own a physical asset while getting your money back upon completion of payment proved irresistible. Country Heights Holdings Bhd has attributed part of the success of Country Heights Damansara to its Chipi scheme.

Since then, other developers have come up with schemes of their own.

Take, for instance, Geotrade Sdn Bhd. Two weeks ago, it announced the signing of a master policy with Malaysia Assurance Alliance Bhd (MAA Assurance) to offer a guaranteed return scheme to buyers of its Ferringhi Hills Resort project in Penang.

The project comprises bungalow lots and 3-storey, semi-detached villas priced between RM635,000 and RM1.6 million.

The idea is simple. Buy any unit of the project and you're guaranteed a return of RM500,000 in cash at the end of 35 years. This payback plan is guaranteed by MAA Assurance under a pure endowment policy plan.

According to customer service personnel at Geotrade, it is no different from buying any other home, that is, the conventional sale and purchase terms remain but buyers can treat the endowment policy as a "gift". Buyers can also name up to five nominees as beneficiaries of the cash return.

Estate agents and financial planners view this as a very innovative form of marketing property.

"We will see more of such cash-back plans in the future because that's what people are going to expect," notes Chan Ai Cheng, assistant manager of SK Brothers.

What is the catch?

Buyers ought to note that chances are the price of giving cash back has been factored into the value of the property itself.

"What they do is that they use a pure endowment policy. So, for instance, if the property is worth RM800,000, they might mark up the price to RM1 million. So in 35 years, compounding interests can increase that RM200,000 to RM1 million," explains Lim Yuen Seong, managing director of D'Wealth Strategists. "However, the value of RM1 million may not be the same by the maturity date because it may have been eroded by inflation."

Where possible, Lim advises that buyers evaluate whether or not the property is worth the price tag.

"If not, why not put the balance you could have saved into something that can give you better returns?" he suggests. "Not many people are conversant with the 'time value of money' concept, so taking it at face value, you may think it's a good deal."

Chan of SK Brothers agrees. She says buyers should not be overly enthusiastic about the money-back scheme.

"Check if the price is reasonable. It shouldn't cost a lot to get a cash-back plan and always ask who is guaranteeing the returns," she says, noting that it is always safer if the plan is backed by an insurance company.

Guarantees also come in other forms, such as promising the rate of appreciation of your property within a certain time frame.

Meda Inc, for example, is offering plots of agricultural land for sale under its Nusa Dusun Orchard Resort project in Kuala Linggi, Melaka. It has 1,445 acres to be sold in three phases. The land units are sold in plots of between one and two acres at no more than RM200,000 per plot, excluding a built bungalow.

Marketed as prime land and situated close to a state seaside tourism development, buyers are guaranteed by Meda that the land in Nusa Dusun will appreciate by at least 23 per cent in four years. The valuation will be done by accredited valuers at the cut-off date.

However, before they qualify for the guarantee, buyers have to settle the purchase in 48 interest-free instalments after paying a down-payment of 10 per cent. If at the end of four years, the land does not appreciate by the promised rate, Meda will pay the difference in cash.

While it may seem too good to be true, estate agents agree that 23 per cent is not a difficult target to achieve. See of Metrohomes reckons that the second and third phases of the development will be sold at slightly higher prices, thereby affecting the future value of the first phase.

Still, See advocates caution when buying into such schemes. The good old basics, such as the reputation of the developer and location, hold when opting to buy land. Also, it helps to be aware that agricultural land is not governed by the Housing Development Act, where standard guidelines for the sale and purchase agreement (S&P) serve to protect both the interests of the developer and buyer.

"It's very risky. You have to look at the fine print and be very comfortable with the S&P before you buy it because it can work mostly in the developer's favour," he warns.

For sure, any investment involves elements of risk. But at least in the case of Nusa Dusun, buyers have been courted. A sales personnel tells The Edge that 70 per cent of its first phase has been sold, proof that in times of uncertainty, a guarantee does go a long way.