Avoid this buying "off-plan" scam
These dodgy property clubs promise incredible, guaranteed returns for investors willing to buy off-plan. But it's a load of rubbish.
You don't have to be a financial product information provider to know that interest rates on savings accounts are now so thin as to be almost invisible. And while the last couple of months have seen near 10% gains in equities, many won't trust this advance.
There is no way of knowing, but it could be a bounce that will either flatten from here, go back to where the FTSE 100 was a year ago – or slip-slide all the way back to 4,000.
Not even the most optimistic stock market fan forecasts a 16% gain on the current level, with another of the same magnitude in 2014, and a further 16% advance in 2015. In round figure terms, that would turn a £10,000 stake today into £15,000 by January 2016. Really good going!
Now – as a hard pushing commission-driven salesman might say – if I could show you returns like that, you would sign up with your all savings, wouldn't you?
Money in bricks and mortar
He would say: “You won't get this return in up and down shares, or in gold, or silver. And as for bank accounts, they're strictly and literally for losers. This investment is in property, in rock-solid bricks and mortar, in an area where there is a proven demand for more and more.”
It's hard to argue with that logic. But argue you must for alarm bells have to start ringing whenever anyone offers astronomic returns for one year, let alone three years, one after the other – even more so when the figures are so precise.
The 16% annual return comes courtesy of an investor club which is part of a self-styled international property group. It is based in Spain, a country which, lest we forget, has had more than its fair share of real estate problems over the past few years. Whole developments remain empty, while some older properties have more than halved in value.
Even scarier, many investors - including tens of thousands from the UK who bought into Spain via now very bust UK-based property clubs which they found via “free seminars” - put their cash into “off-plan” developments. Off-plan means what it says; instead of seeing what you are buying, you purchase from a drawing, a plan of the building or the area or evem a photo of an architect's model.
So buyers don't get to see the area or the quality of the building. They aren't able to compare its price with nearby properties. No one in their right mind would buy their own home without looking at it first, seeing it by day, by night and trying to sum up the area and its transport/school/shopping/amusements situation.
Yet investors were happily laying out tens of thousands of pounds on the basis of a drawing and the promise that they could double their money once building work started as demand would be so great.
Sadly, they lost all their money – sometimes even more than their original stake depending on the contract they signed. Years later some of these cases are still rumbling through the courts.
My 16% a year offer was to buy holiday flats and so-called hotel apartments off-plan. And just in case I am worried about ending up with property that has inflated values which no one will pay, there is a so-called safe exit strategy. This is commonly used to persuade investors – it sounds like a guarantee.
Now all guarantees are only as good as the firm making them.
Retailers guarantee to honour gift vouchers but then they don't when the administrators arrive. Here, the safe exit strategy is undefined – does it mean my original stake (and we are talking £40,000 upwards) will be secure or my money plus the promised return (that's a minimum £60,000). It is not stated. And while the exit is apparently secured by an insurance company, there is no sign of which company might provide the backing, let alone that insurer's financial situation.
But in case you are worried, it seems that some of the world's tip-top media have backed the project. The website is decorated with logos of the BBC, Sunday Times, Daily Mail, Daily Telegraph and International Herald Tribune. But there are no links, no sign that these world-renowned broadcasters and publishers have ever written about the company, let alone in a flattering sense, although they have all at some time or other written about holiday property.
These are just logos – easy to find and easy to paste. The owners of these logos have no links whatsoever with the property company which is not regulated in the UK, Spain or anywhere else.
There are hundreds of serious – and regulated – hedge and other funds out there which would love a guaranteed 16% a year for the next three years.
Now if this return was really on offer, they would be doing it themselves. And if big investors were involved, the Spanish firm would have no need to indulge in marketing to the likes of you and me. Only, professionals would not touch this with the proverbial barge pole. Let that be a stark warning.