InvestingAbroad: Ireland's financial watchdog is revising its codes to guard against firms offering fantasy returns on overseas property investments. Edel Morgan reports.
Irish companies advertising get-rich-quick property investment vehicles should beware.
The Irish Financial Services Regulatory Authority (IFSRA) now has the powers to follow its UK counterpart, the Financial Services Authority, in a clampdown on companies offering unrealistic returns on property investments.
Last week, the Financial Services Authority fined Courtover Investment Management, an independent financial advisor, for a newspaper advertisement that read "Invest abroad and get a 20 per cent return".
The company was fined £20,000 (€29,000) for approving a misleading financial promotion of unlisted shares in the property company, that could potentially have been seen by 200,000 readers.
In the same week the Department for Productivity, Energy and Industry wound up four companies in the High Court promising lucrative returns despite all the evidence of a slowdown in the domestic buy-to-let market.
Among these were Newcastle- under-Lyme based Sterling Mansions and London-based Mansion Investments, which offered to help clients build a £1 million (€1.45 million) portfolio in a year for £33,000 (€48,000) - resulting in some investors losing substantial fortunes.
York-based SMI (Overseas) made similar promises of multimillion pound portfolios. Another company, CM2 Services, guaranteed a 100 per cent return within 12 months.
A request to wind up two other companies, Turningpoint Seminars and Portfolios of Distinction, will be heard by the High Court on June 15th. Turningpoint Seminars charged £6,000 (€8,700) to prospective investors, teaching them how to acquire buy-to-let properties without paying a deposit. Portfolios of Distinction offered to build a £1 million (€1.45 million) portfolio for a £50,000 (€72,600) fee.
In a statement, the Department of Trade and Industry minister, Gerry Sutcliffe, said this should serve as a warning to other "unscrupulous operators".
Victims are typically novice investors taken in by the hype and persuaded to part with their savings in return for instant financial reward in domestic and overseas property.
As in Ireland, syndicates are big business in the UK and have helped fund new high rise developments across England and abroad. These investment companies promise to negotiate discounts from developers for bulk buying flats, often providing builders with cash up front to finish buildings.
Some of the legitimate investment companies and syndicates are now calling on the British government to regulate the industry so the entire industry does not get a bad name.
IFSRA says it now has powers at its disposal to act against companies in breach of its requirements. Its remit was enlarged in August, 2004 when the the Central Bank and Financial Services Authority of Ireland Act was brought into force.
According to a spokesperson, IFSRA is in the process of revising codes of conduct "and putting an appropriate sanction regime in place if a firm is in breach of our requirements".
It can now impose a wide range of penalties, including fines of up to €5 million on large financial institutions and up to €50,000 on individuals.
With returns in the Irish property market proving less than attractive in the short to medium term, investors here have been looking to the overseas market to make a profit with syndicate bulk buying. While seasoned Irish investors are unlikely to be taken in by property scams, the less experienced are vulnerable to losing it all in a market full of hazards. Their ambitions can be fuelled by expensive seminars by self-proclaimed gurus promising huge returns.
The director of Corporate Enforcement, Paul Appleby, says he is not aware of any complaints in relation to investors getting ripped off or property investment companies being in breach of the law, "but if we did get a company law complaint of that nature it would be examined and might be a matter for Garda fraud investigation".
Dermott Jewell of the Consumers Association believes it is early days in Ireland for many of these schemes "and the sell is only really beginning. I know of a number of people who, in recent weeks, have received leaflets suggesting big potential profits on land in Scotland. It is one, clearly, to watch as there are likely to be problems ahead."
