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  • Writer's pictureNeil Bromage

The Great British Property Scam (part 4)

PUBLISHED: 21:50, 8 February 2020 |

Investors are being warned to steer clear of adverts for collective investment schemes that promise a stream of income from a stake in a car park, self-storage units, student accommodation blocks, hotels or care homes.

The schemes are unregulated, often illegally marketed and once bought almost impossible to sell. In many cases, the funds are promoted as property-based when in reality the building has yet to be developed. Some are outright scams.

Given they are unregulated, it means investors cannot seek compensation from the Financial Services Compensation Scheme or get redress from the Financial Ombudsman Service.

Such property-based unregulated collective investment schemes first became popular in the aftermath of the 2008 financial crisis when the big banks pulled the plug on the funding of many developments.

While some developers went out of business, others became more creative, inviting investors to fund their projects by buying a 'unit' in them – commonly known as 'fractional ownership'.

This could be an individual room in a hotel, student accommodation block or care home – or part ownership of a car park or self-storage facility. The income would then come from the letting of the rooms or revenues generated from the car park or storage units.

But most were marketed illegally – it is unlawful to promote them to the general public if set up as unregulated collective investment schemes.

The Financial Conduct Authority warns against them saying they are 'not recommended for most people as unregulated collective investment schemes by their nature are risky products'.

When Wiltshire-based Ray and Lois Ingham invested part of their retirement funds into such a scheme – property backed – four years ago, they thought they were buying into an investment that would provide them with an attractive income for the rest of their lives. Nothing could have been further from the truth.

With promised annual fixed returns ranging up to 10 per cent for ten years, they parted with nearly £100,000 to purchase two student accommodation 'units' in Scholars Village, Bradford.

The development was one of 19 similar projects in other towns and cities developed by A1 Alpha Properties (Leicester) Limited.

Ray says: 'It looked perfect. 'We were living in France so we didn't want an investment we had to manage ourselves like a buy-to-let property. We were investing into property that everyone thinks of as secure and our solicitors didn't warn of any reason why we shouldn't proceed.' Ray thought it would be an 'armchair investment' – one where he and Lois could sit back and pocket the income from the students' rent.

Within 18 months, the promised returns on their investment had dried up. This time last year, A1 Alpha Properties (Leicester) went into administration with directors Nicholas Spence and Derek Kewley partly blaming the company's collapse on a glut of student accommodation.

Investors collectively stand to lose up to £100 million as a result of the business failure – and to rub salt into open wounds they are still receiving demands for service charges and ground rents.

Despite warnings from the regulator these schemes are still being offered to unwary buyers. For example, schemes are available offering investments in The Baltic Hotel and Epic Hotel & Residence, both in Liverpool.

Gareth Shaw, head of money at consumer body Which?, says: 'High-risk schemes that lure investors with the promise of high returns are unregulated and do not offer the same protections as traditional investments.'

The Inghams now have the support of online advice service and are seeking to recover their money.

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