Revealed: the collapsed UK property schemes luring small investors

Revealed: the collapsed UK property schemes luring small investors

Developments promoted by politicians – including former chancellor George Osborne – remain unbuilt, sparking fraud allegations

More than a dozen property schemes in the north of England that were promoted to investors in Asia – in one case by former chancellor George Osborne – have either stalled indefinitely or collapsed outright, a Guardian Cities investigation has found.

Hundreds of investors claim to have lost money to an increasingly popular property model known as “buyer-funded development”. In these schemes, rather than go to banks, developers finance projects using multiple small investors’ deposits – which can be up to 80% of the value of the unit.

But, according to some investors, money has been taken without the units being delivered. Some describe losing their life savings and say they have approached police for help recovering their funds.

Others say they believed the developments were somehow state-guaranteed because they were promoted as investment opportunities by officials from local or national government.

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What is buyer-funded development?

City of London police said they received more than 800 complaints of fraud involving property between 2015 and 2017. Overseas investors had reported losses of more than £10m, they said.

The same developers and contractors appear in a number of the schemes examined by the Guardian, which between them promised to construct almost 5,000 homes or student rental units in cities across the UK.

Five development schemes were sited in Liverpool with plans for 2,354 residential units

Five of the schemes examined by the Guardian are sited in Liverpool. They include the £200m “New Chinatown” development, advertised by the developer North Point Global as a “massively prestigious project” with 790 residential units and a 140-room hotel, as well as leisure and commercial space.

The development was one of several projects in the north of England promoted to overseas investors by Osborne during a 2015 “trade mission” to China. Osborne told the Liverpool Echo that he was working as a “tag team” with the city’s mayor, Joe Anderson, to persuade individuals to invest in the scheme.

However, the development has since been mired in problems, with little sign of progress at the construction site. Amid increasingly serious complaints by investors and several missed deadlines, Liverpool city council commenced legal action against the developer last year and said it had referred the scheme to the National Crime Agency.

Last July North Point Global announced it would seek to offload all of its property developments because its brand was “tainted and damaged beyond salvage” as a result of criticism by the council and reporting by the Liverpool Echo, which has covered its developments extensively.

“Everyone in North Point Global group is totally and utterly devastated that the group has been unable to complete its development pipeline and that as a result buyers have incurred any losses,” said Samuel Beilin, speaking on behalf of the firm.

He said North Point Global and its staff had not been approached by the National Crime Agency, “nor any regulatory or prosecutorial body, for that matter”.

Last week Liverpool city council announced that a new developer had agreed to take over the site. It said it was intended that investors who had already paid for units would receive them.

A spokesperson for Osborne, who is now editor of the Evening Standard, said: “As chancellor, Mr Osborne was pleased to work with local Labour councils in the north of England to promote jobs, development [and] overseas investment in the northern powerhouse.”

In another case, the company developing the Angelgate complex in Manchester was placed in administration following a petition of investors to the high court last year.

In a document filed with Companies House, the administrator of Pinnacle (Angelgate) Ltd said that, of the £31m accrued from off-plan purchases by investors, £13m had been paid to a related Pinnacle company in sales and marketing commissions.

“It is not clear how on any basis [Pinnacle Angelgate] could justify spending over 40% of the funds received from buyers on sales and marketing commissions, particularly as this meant the company was [circa] £10m short of the … contracted design and build cost from the outset,” he wrote, adding that he understood more than 70 buyers had reported concerns to police and that Greater Manchester police and HMRC had launched their own investigations.

A spokesperson for Pinnacle said authorities had not contracted the company and it would fully cooperate were they to do so.

At least three other developments by the Pinnacle group have faced problems. Last month the company set up to develop the Quadrant student accommodation in Liverpool fell into administration after running out of money, and investors in the Paramount and Spectrum developments in Liverpool and Sheffield have alsocomplained of delays.

The Pinnacle spokesperson said Angelgate and Quadrant were now in the hands of administrators, but that it was “working extremely hard on completion dates for both Spectrum and the Paramount” and liaising with companies representing buyers for both properties. “There is currently no need to discuss refunds and both developments are near completion,” they added.

Police in Hong Kong are also reported to be investigating another firm, Absolute Living Developments, which marketed at least three off-plan property opportunities to investors before falling into liquidation in 2016.

One of the individuals since accused of wrongdoing by the liquidator has denied the allegations and said they would be contested “in the strongest possible terms”.

In 2014, Key Homes Group, which marketed at least six developments off-plan to overseas investors, also fell into administration.

“The UK government must take action,” says James To Kun-sun, a member of Hong Kong’s legislative council, who estimates that more than 700 buyers in Hong Kong alone have lost an average of £45,000 to failed buyer-financed developments.

“People here have a sentimental link with the UK, as a place with a responsible government, democracy and the rule of law, so it is shocking that this can be allowed to happen.”

Source: The Guardian

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