OFT looks at property investment clubs
ADVERTS saying 'become a property millionaire' and 'build a substantial property portfolio' have been appearing in newspapers and on the Tube recently.
With the come-on of a free seminar and the lure of get-rich-quick entry into the property market, you might imagine you are going to get tips on renovation, cheap financing and low-commission agents.
But the ads are promoting property investment clubs, and they are causing concern among mainstream property professionals and with the Government. The Office of Fair Trading, under chairman Sir John Vickers, is looking into such schemes and will report by the year-end.
The clubs buy new flats at a discount, sometimes before they have even been built, and then sell them on to their members. It is a massive growth industry.
One of the biggest schemes is run by Kingston upon Thames-based Inside Track. Its affiliate company Instant Access Properties has bought more than £560m of residential property - or almost 8% of all newly-built flats in the UK - in the past 12 months alone.
But to join Instant Access you pay a fee of almost £6000, a monthly subscription of £119 and a 3% buyers' premium.
Australian Brad Rosser and marketing man Jim Moore own Inside Track and, with annual profits of £9m on £25m turnover, a flotation or trade sale is on the agenda. Tony McKay, a former managing director of estate agent Chesterton and now chief operating officer of Inside Track, says: 'Property investment clubs account for 16% of all new-build flat purchases in the UK.
'Obviously, no investment is risk-free but we do proper due diligence and when we buy off-plan, we do it at today's price so if it gets growth, it's a bonus and if the market is flat, the discount acts as a buffer against a fall in the market.'
However, there are growing calls for some regulation, and for those joining schemes to be fully aware of the associated costs and the risks involved. Estates Gazette editor Peter Bill warns: 'It really is buyer beware here. These investment clubs are completely unregulated save for the figleaf of the Property Misdescriptions Act 1991.
'The Financial Services Authority regulates mortgages, investment advisers and agents offering advice but it does not regulate property investment clubs. It is just plain crazy.'
