COVER STORY
COVER STORY
Property investment scams Unfortunately, the property industry lends itself perfectly to fraud and scams. This is quite evident from the range of scandals that have rocked the property industry over the last few years: unscrupulous estate agents stealing deposits that should be safeguarded in trust accounts; auctioneers rigging auctions to drive up the bids; property investment syndications that have ruined thousand of investors’ lives; and property investment“ gurus” who sell properties at inflated values or simply take off with investors’ money.
Buy-to-let scams In buy-to-let scams, companies offer investors a turnkey solution to acquiring, renovating, and managing properties with guaranteed tenants and great rental incomes. But the investors end up with derelict properties in slums, no tenants and no income, while they are left paying rates and taxes and sorting out endless property problems. Investors should be especially wary of offers of such properties in other countries, which makes it difficult for the investor to inspect the property.
This scam can also take the form of property marketing companies who use buy-to-let seminars or training courses as a means to sell their own properties, or a developer’ s properties, to investors at over-inflated values. In some cases, they might sell bargain properties that are actually located in slums, high crime areas or dilapidated areas.
Rental scams Rental scams involves fraudsters renting accommodation they do not own and have no authority to let. These properties may be for sale or untenanted for some reason, or may simply not exist. The scammers will collect a deposit and disappear without a trace. This scam works particularly well with people moving to another country or town and do not have the opportunity to view the property. Another variation targets holiday makers who pay rental deposits, only to arrive at a non-existent villa or one occupied by surprised owners.
Land banking Land banking is a form of investment in vacant land that can be acquired at a bargain price while awaiting planning permission to be granted by the local authorities. The selling point is that the value of the land will increase substantially once the planning permission is approved. Thousands of investors have found themselves proud owners of parcels of land for which planning permission is unlikely ever to be granted, because it is, for example, agricultural land or unsuitable for development.
Property acquisition scams Similar to rental scams, some investors have bought properties from fraudsters who never owned the property; or bought property that did not exist; or bought property that could not be sold legally. One such scam was the“ Johannesburg North” scam through which a number of Europeans bought properties in“ Eloff Street”,“ Commissioner Street” and“ Market Street” at a bargain price. But instead of getting a parcel of prime real estate in central Johannesburg, they were stuck with an empty piece of land 10kms outside the city, in a non-existent development.
How to avoid getting scammed Verify everything: If you receive an investment
opportunity from a well-known company, contact the company using the contact number on their website or listed in the phone book to verify the offer. Don’ t use the numbers provided in the email or on the brochure offering the opportunity. Go online and research both the company and the offer, looking particularly for feedback from other investors. Seeing isn’ t believing- remember that photos can be touched up and changed. Get in your car and check it out for yourself. Never assume that if someone is taking up an offer that he or she has done their homework. If you are appointing a service provider of any kind- from a building contractor to a lawyer- ask friends, neighbours or family for recommendations. Get at least three quotes and a copy of the contract and insist on a detailed breakdown of costs, as well as proof that
they are correctly registered and licenced. Take your time: Decisions made under pressure
are most often not the best decisions and are often regretted. Don’ t make hasty decisions. If a company or a representative is placing you under pressure to make a quick decision, beware. This is often a clear indication of a scam. Never agree to offers or deals straight away. In particular, be wary of signing up for anything after an inspiring and rousing presentation. Take your time to investigate the offer and do your homework. Do the homework: Never invest in anything without doing thorough research. If you’ re investing in property, visit the property at least once, but preferably several times on different days and during different times of the day. If you are buying vacant
14 JULY 2016 SA Real Estate Investor www. reimag. co. za