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Syndication scams fleecing investors

08 Apr 2011

Paddy Hartdegen writes a regular column for Property24.com

How many of these names are familiar to you? City Capital, Masterbond, Capital Investments, Bluezone, Lifesure Financial Services, PropDotCom, Blue Pointer, King Financial Services?

Let me bring these names into slightly sharper focus with some clues: Sharemax, Realcor, PIC? They are all property syndication schemes or marketers of those schemes.

A quick bit of research will show you just how many property syndication schemes have failed and how many investors have lost their entire life savings as a result because they’ve been duped into putting their money in these schemes.

I guess it’s impossible to protect greedy people or stupid people from losing money but the tried and tested watchword for investing is that if it looks too good to be true then it probably is.

With the history of failed syndication schemes, surely it’s now time for the Financial Services Board (or the South African Reserve Bank) to step in and just outlaw these schemes.

There’s a litany of evidence proving that these property syndication schemes fail and there’s much less evidence, locally anyway, that such schemes do well for the investors. Some do work, but generally those are the ones that are offering modest returns over a sustained period.

So what I want to suggest now is that the FSB steps in to prevent dodgy schemes based on a prospectus that is blatant hogwash from making false promises that can never be fulfilled.

And that means that the FSB must enforce complete compliance prior to any scheme being offered to members of the public and it must immediately outlaw the dodgy schemes and return the money they’ve collected directly to the investors.

Frankly, I think that the FSB should have taken much stronger action already.

If you go to the FSB website (www.fsb.co.za) and look under the FAIS section you can search for an authorised financial service provider. There you will find schemes such as Sharemax Investments, Sharemax Premium and even Realcor (although it has been provisionally suspended). 

Now a lot of people will wail and whine when I suggest outlawing dodgy schemes but sometimes naïve investors need to be protected from themselves or from the marketers who are so persuasive.

You see if you put any scheme into the hands of a persuasive sales dude he or she will quickly have you believing that you can’t go wrong.

I reckon if you were to give a good marketer the goal to sell a property syndication scheme comprising 10 000 low-income houses he’d have everyone quickly believing that it represents a brilliant opportunity because millions of homeless people have to rent these homes for time immemorial.

Anyone with half-a-brain knows that such a syndication is very risky – at best – and probably an out-and-out failure at worst.

But put this notion into the hands of a skilled and smooth-talking professional and he’ll quickly have you believing that a 12% return is enough to provide any pensioner with money to live on for the rest of his days. He’ll even convince them that when they die, their heirs will get the full investment back.

He’ll ask that ever-present rhetorical question: What could be safer than that?

So just as the adage thatif it sounds too good to be true, it probably is applies so does a new one: If a sales dude’s offering you great returns then he’s getting richer than you.

Many investment schemes are worthwhile, are run by reputable companies and are sold by reputable advisers. I’ve worked with, and dealt with, many of them over the years and I would have the utmost faith in investing my own money with them.

But there are also the snakes, sharks, crocodiles and jackals out and there these are the people that are out to fleece you. It’s those people, and those schemes, that I believe the FSB should outlaw.

An extremely well-known and widely respected journalist, Deon Basson, campaigned for years and years to stop property syndication schemes from fleecing innocent investors. Sadly, he failed but until his death in 2008 aged just 53, Basson remained a public interest warrior against property syndication.

To this day, many people believe that Basson’s determination to take on Sharemax actually contributed to his death, but whether that was the case or not is rather meaningless conjecture right now.

He died trying to stop property syndication schemes from fleecing people. And like Basson, I believe that the FSB should do so now and if not the FSB then the SARB or some other equally legitimate, powerful and influential body.

There is just too much evidence that property syndication schemes end in tears for the naïve investors who put their money into the marketing spiel that they were sold.

In my own experience, rich people are generally more astute than those who with a small amount of money (That’s why they’re so rich) and that’s probably why none of my own wealthy friends consider investments such as Sharemax, Realcor or PIC as a real option for them.

In fact most of them regard South African property syndications as being unworthy of the paper they’re written on. Suggest that they invest in syndicated properties in London, Birmingham, Toronto or Hong Kong and that’s a different story.

And the reason for this is simple: property syndications offering excessively high interest rates cannot be sustained. If a bank pays 6,5% and a syndication offers 12% be suspicious. Be very suspicious. If it offers 8% or maybe 9% at a push then maybe someone’s done their homework. Maybe then it might be worth looking into more carefully.

If you doubt my views then just go and have a look through the listed cases with the Ombud for Financial Services and you’ll see how many relate to failed property syndications.

Research the back issues of publications such as Personal Finance and you’ll find that it too has repeatedly been warning people – particularly those who are not schooled in financial planning and have not got the qualifications to judge for themselves – to be wary of these investment vehicles.

The evidence is overwhelming and when that’s the case – even though ever-hungry marketers keep punting such schemes – it’s time to put legislation in place to outlaw dodgy schemes.

And that’s exactly the point.

Skilled sales people will sell you sour curdled yoghurt and have you believing that it will rejuvenate your skin and reinvigorate your sex life but if you eat it you’ll win the Lotto too.

We need to prevent these marketers from fleecing people with schemes like Masterbond where some investors lost everything they ever owned and even lost their lives.

*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and doesn’t pretend to be facts or advice. Contact him via email.

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About the Author
Paddy Hartdegen

Paddy Hartdegen

Freelance columnist at property24.com.

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