Making buy-to-lease work

THE buy-to-lease model is a relatively common trend in the property and real estate industry, particularly for commercial assets.

Under this scheme, the owner who has purchased the property will have to lease it back to the developer or property management company in exchange for rental returns.

The scheme, especially for serviced apartments that are used as hotel accommodations, can sound very attractive as they allow investors to reap the returns without the hassle of managing the property.

In essence, investors in the scheme are attracted to two possible returns: rental income and potential capital growth when the asset increases in value over time. The rental returns are either based on a guaranteed return model or a profit-sharing scheme.

Some of the recent hospitality-linked properties that are sold using this scheme include PTS Properties’ luxury condominium hotel, The Pines Melaka, which reportedly comes with a leaseback return of 7.5% per annum for the first nine years and 9% for the following six years. Other notable ones include The Ruma by Ireka Corp Bhd and Angsana Teluk Bahang by Banyan Tree Group.

One of the main concerns with regards to such developments, however, is whether the developer will be financially capable of honouring their contractual obligation.

In the case of Lexis Hotels & Resorts, having worked closely with KL Metro Group, president Mandy Chew echoes the view that the buy-to-lease scheme is a good alternative for property investors, but the success will depend very much on the capability of the property management firm in delivering such returns.

“Any guaranteed returns will only be valid for a certain period of time. After that, any potential returns will be based on a profit-sharing basis.

“The key to keeping investors happy and to retain their confidence, is to manage the property efficiently enough to generate profits. The higher the margin means more can be shared with the investors,” she says.

In fact, many of the investors in Lexis-managed properties, including its upcoming Imperial Lexis in Kuala Lumpur, are repeat customers, Chew points out. They are the same ones who had invested in Lexis Port Dickson some 12 years ago.

The company’s first city hotel, Imperial Lexis Kuala Lumpur – developed by KL Metro Group – offers a similar investment concept.

But this will be another test for Lexis to demonstrate if it can maintain and replicate its sterling performances as it brings its management and services standard into a business hub away from the soothing sounds of the beach.