Property investment clubs (PICs) are back in business despite negative publicity two years ago, and the closure of several by the Department of Trade and Industry. Disturbingly, some seem to be moving into the land bank scam too.
The new generation of PICs is also being blamed for the over-supply and subsequent slump in prices of developments consisting mainly of two-bedroom, two-bathroom flats mainly in northern city centres.
PICs attract small investors by offering big discounts on new properties bought off-plan. Guaranteed rent levels are usually offered as well.
Critics believe the discounts offered are illusions, created by exaggerating the list price in the first place.
Matthew Wyles, group development director of the Portman Group, owners of buy-to-let lender The Mortgage Works, asks: "The $64,000 question is what is the discount from? Developers only sell at a discount if they are not confident they will sell them at full price - the 15 per cent discount is often a reflection not of buying power but the fact that they wouldn't sell.
"They appeal to consumers who don't really want to be bothered to do their own research and that is very dangerous," he says. "Some clubs play on the lazy and ignorant."
There is no substitute for doing your own research to ensure your nest egg is safe, let alone earning the return you expect, Wyles says.
"I know of one landlord who puts dummy ads in the local paper to measure levels of demand, and goes into letting agents posing as a tenant to find out what rent levels really are," he says.
PICs are not regulated by the Financial Services Authority (FSA) because they are not a collective investment like unit trusts but each investor owns their own properties. "I don't understand why these organisations are not regulated because they advise on making large, illiquid investments. They are snake-oil salesmen," Wyles says.
The reputation of PICs is now so bad that one of the first has reinvented itself.
"We came first as the Property Investors' Club, but then came a deluge of dodgy people with similar names, so we rebranded ourselves," says Stuart Law, founder of the organisation now known as Assetz.
He describes Assetz as "investment advisers who happen to sell properties". Assetz operates several property funds, which are regulated by the FSA, and acts for buyers in purchasing buy-to-let properties.
"We act for our clients and ourselves. We are just launching a student scheme in Bedford and I have bought three units for myself. If it all goes pear-shaped I lose too," he says.
The next type of buy-to-let property operation is the reputable property club, which has transparent buying practices but has relied in the past on soaring prices to bring a return. But some PICs are not so nice.
"At the bottom are the equivalent of what the FSA calls boiler-room operations, though I call them spivs," Law says. "They pile them high and sell cheap. They disappeared for a while but now they are back."
These PICs almost always buy new flats off-plan. "Some of these organisations use documents provided by big estate agencies to show prices and discounts at each development, and because they are reputable agencies the investors believe them," Law says. "But what you have to remember is that they are acting for the developers, not you, so they quote the highest price possible."
Lenders such as The Mortgage Works no longer lend on new properties, only on second-hand properties where the price has been tested on the open market.
Lee Grandin, managing director of Landlord Mortgages, says: "Lenders have realised the threat PICs pose in terms of distorting property prices and as a result some no longer lend on new-build properties. Lenders are working with valuers to find a solution to this problem."
Even more alarmingly, PICs are now going abroad. "Some clubs have been looking at overseas property which can be even more risky - it is one thing to pay too much in your home country, but quite another to do so in a country where you know neither your rights nor your market," Grandin points out.
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