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February 1

by Millie Wickens
Fraud warning over risky off-plan property deals

City of London Police have revealed that more than 800 complaints involving £10 million of alleged property frauds were received between 2015 and 2017.

Property investors have lost millions of pounds in buyer funded deals as off-plan developers have failed to deliver on their promises.

Hundreds of investors have complained to fraud detectives as apartment block and student living projects have collapsed.

The government’s Insolvency Service is looking at how to recover £68 million for investors from one of the latest fails – Absolute Living Developments Ltd.

Buyer funded deals are risky, say the insolvency experts, because instead of developers raising money from banks and other lenders, they pool cash paid as deposits by investors to finance the builds.

Ken Beasley, Official Receiver for the Insolvency Service said: “Absolute Living Developments was a complex investigation, considering the amount of money that was invested. Not all the directors were based in the UK and we worked with several other authorities.

“We want to draw attention to rogue directors so we can alert people about the risks involved when investing, while also warning that we will investigate and tackle those that set out to deliberately rip people off by misrepresenting the investment opportunity on offer.”

Absolute’s six directors were banned from running a company for a total of 54 years after a judge closed the business in the public interest after hearing that they had misused £12 million of customer cash.

A further £68 million in company assets was signed over to a third party, leaving the business with nothing to repay to disgruntled out-of-pocket investors.

The Solicitors Regulation Authority has warned members to avoid acting in buyer funded deals while acting against eight law firms handling more than £100 million for investors.

“Schemes are promoted as involving the routine buying of a property when in reality the buyers’ money is being used to finance a development or refurbishment,” says the SRA.

“This is of particular concern in unusual developments such as the buying of individual hotel rooms, rooms in care homes, or self-storage units. Our concerns also apply to some extent to any off-plan purchases. These may not be investment frauds but they still involve higher risk than the simple purchase of a property.

“High deposits are used by property developers to finance their developments. Investors are not being advised, or properly advised, that this often presents a much higher risk than simply buying an existing house or apartment.”

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