23 February 2012

Collective Property Investment Schemes - Beware

It was reported in the online Star newspaper today that a number of Malaysians lost the money they invested into a land banking company called Edgeworth Properties Inc. It seems that the said company has gone into liquidation.

This is not the first land banking scheme. Investors would have heard of, or even attended talks given by, or worse invested into, other land banking companies such as UK Land or Walton International. Certain land banking companies based in the UK had expanded into Malaysia,  but with increasing awareness of the risks of such investments and the regulatory void they operate in, many investors have come forward to enquire as to their legitimacy or outright lodged complaints against them. To its credit, the UK FSA has taken action against such land banking companies that operate without an FSA licence. You may find the following information from the UK FSA useful:

How it works

The contact usually comes out of the blue, with most schemes cold-calling investors after taking their phone number from publicly available shareholder lists. But the high-pressure sales tactics can also come by email, post, word of mouth or at a seminar or exhibition. 

Investors are told they will make big profits on small plots of land once planning permission is granted or development started.

But many plot-holders instead lose large sums of money as this permission is often not granted or even applied for, and they are left with a plot that is practically worthless.

While not all land banking schemes are a scam, it is often not made clear to investors that there are restrictions on the development of the land or that it is otherwise protected.

Where it is explained that planning permission still needs to be obtained, promoters of land banking schemes may offer to handle the application process. If this is the case we should be able to help, as explained below.
There are also follow-up scams where plot-holders are asked to pay more money to settle their holding once they realise they will never turn a profit.

Land banking as a CIS

We do not regulate the sale of land. But we do regulate collective investment schemes (CIS) and a firm must be authorised by us to promote or operate them in the UK. 

We can only take action over a land banking scheme when it is being promoted or operated as a CIS without our authorisation. The scheme may be a CIS where:
  1. investors do not have day-to-day control over managing their plot;
  2. the scheme involves pooling investor funds; and
  3. the operator is responsible for managing the scheme as a whole.
It is possible to sell plots of land without the scheme being a CIS. So, many land banking schemes are set up to avoid the characteristics of a CIS – at least on paper.

However, sales people may tell a different story and it helps us prove that a land banking scheme is a CIS if we know what you are told when it is being promoted.

In the Malaysian context, the Securities Commission is the regulatory authority that overseas CIS, and any company that promotes such a scheme must be approved by the SC.

Given today's news on Edgeworth, I was disturbed by a call I received from Avenue Properties Berhad, promoting their novel idea, Avenue Hotel Property Interest Scheme (AHPS). The subject property comprises a 130-room 4-storey boutique hotel together with a Chinese restaurant, entertainment centre, health spa & wellness centre, and food & beverage outlets within a proposed 4-storey purpose-built commercial building at Jalan Raja Uda, Butterworth, Penang.

"The public are welcome to invest at RM4,800 per interest-share," said chief executive officer and managing director Richard Woo, in various press releases.Its director of marketing and communications, Khong Yue Chen, said, "In compliance with CCM's requirements and guidelines, we also have appointed a Trustee for the AHPS."  

The press release in The Edge on 16 Feb 2011 said that Avenue Properties, which is capitalised at RM5 million, has established under the AHPS 10,500 property interests of which only 7,350 interests are intended for public subscription. Which means that an RM5mil company can raise funds from the public to the tune of RM35 mil. without approval from either BNM or SC? This is better than going public what with all the investment bankers' fees and due diligence etc. 

From the information I reproduced from the UK FSA's website, don't you think this smells like a CIS?

I had posed a few questions to the AHPS representative who called me. Since he couldn't answer my questions, he said he'd get his colleague to contact me. I'm still waiting. 

6 comments:

  1. Dont forget Jardin Smith. They are still offering UK land plots with the latest one being Romford. You can see the truth on the prospects for Romford here
    http://www.romfordrecorder.co.uk/news/havering_green_belt_for_sale_in_asia_1_878264

    or here

    http://www.whatdotheyknow.com/request/jardin_smith_bedfords_road_romfo

    In short a site with very low propsects for any development returns. If the land cannot be developed then the open market value is tiny compared with what you pay for it.

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  2. I was approached by a few of them too and the latest one is AHPS. So did they call you?

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  3. The AHPS rep did not call me again. There are too many scams out there these days...be careful, think twice, read and ask people. Don't wanna end up like the Geneva investors do we?

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