£1 billion lost to doomed property schemes

Hotel rooms, student accommodation and even car parking spaces have been sold to investors, only for projects to collapse. By Adam Williams

Amajor investment scandal has cost ordinary savers more than £1bn and left them saddled with debt for years to come. Vast sums have been ploughed into eight schemes which promised returns of more than 10pc a year by buying stakes in hotels, care homes, car parks and other properties. However, many of the projects were doomed from the start, Telegraph Money can disclose.

Investors were lured by scheme operators who bought large properties and sold them on to investors room by room. Slick websites and brochures persuaded savers to part with their cash – with disastrous consequences.

Those selling the schemes exploited lax regulation from the City watchdog to take tens of thousands of pounds from savers but leave them exposed to huge risks. This newspaper has uncovered cases where hotels would have needed more than 100pc occupancy for investors to make a profit. Often these purchases, typically for £50,000, were signed off by solicitors who failed to highlight unusual activity surrounding the purchases to investors. Many were located in the North West of England.

Marketing such schemes to DIY investors has been banned since 2014. However, Telegraph Money has found multiple examples of such projects – called unregulated collective investment schemes – being advertised.

The watchdog, the Financial Conduct Authority, has been accused of standing by as investors lose their life savings.

Unlike other failed investments, such as mini-bonds, investors are liable to lose more than their initial stake, as they remain liable for future council tax, service charges and other payments.

Ray Ingham, 75, from Wiltshire, invested his life savings into a student accommodation scheme in 2016.

He was looking to generate returns which would help fund him and his wife Lois, 60, through retirement. “I found a company online called Emerging Property which was advertising investments in student accommodation in Bradford,” he said. Mr Ingham invested £96,000 in two student rooms, bought from a firm called Alpha Developments via Emerging Property.

“It all seemed okay to start with but then after 18 months we started to get signals that something wasn’t right,” he said. The couple began receiving lower returns than expected, before payments stopped entirely. They have been left with rooms which are generating no profit and are impossible to sell. The couple’s retirement plans are now in tatters. “It has been years of non-stop stress,” he said. “My biggest concern is that I now don’t have a pot of money to pass on to my wife. The £96,000 was nearly all of our savings.”

In another case seen by this newspaper, which cannot be identified for confidentiality reasons, more than 65 individuals spent £ 50,000 each buying hotel rooms in a northern seaside town. But the way the scheme was structured meant the hotel would never have been able to generate enough profit to cover the repayments.

Investors were given official documents from the Land Registry showing their ownership of the asset and initially received monthly interest payments, as Mr Ingham did. But in reality they were simply receiving a small amount of their own money back, giving them the impression the scheme was operating successfully. When all the rooms were sold the payments to investors ceased. This left investors with rooms which had no value and to which they had no legal rights of access, as they did not own the hotel’s lobby.

Jonathan Sachs of BDB Pitmans, a law firm working to recover lost money, said he was aware of cases where investors were liable to pay £ 750 a year ground rent and maintenance charges for the next 240 years, plus council tax.

The Serious Fraud Office is investigating at least two schemes while the Solicitors Regulation Authority, which regulates the legal sector, has struck off 17 firms and individuals and issued fines of more than £1m since July 2015.

While these schemes are unregulated, the FCA has the power to intervene in any case where it believes consumers are at risk of financial harm. It imposed restrictions on the promotion of unregulated schemes in 2014,

but declined to state how many times it had taken any action since. The FCA said: “We consider all reports received about potential unregulated collective investment schemes.” A spokesman encouraged consumers to check its register to ensure firms were authorised before investing.

Imran Benson of Hailsham Chambers, a law firm, likened the lack of oversight to the London Capital & Finance mini-bond scandal, in which investors lost £237m.

An independent report into LCF’s collapse castigated the regulator for failing to monitor the sector. Mr Benson said: “The FCA dropped the ball on mini-bonds and is not paying enough attention to this either. This is the regulator’s blind spot.”

The FCA took legal action against the operator of the £230m Park First car park investment scheme, recovering £58m, and Mr Ingham asked why it had not done so with other firms. “This is still going on now but the FCA is doing nothing about it. They should be issuing warnings to stop others falling victim,” he said.

KL Capital, a private firm funding legal action against the solicitors who signed off the sales, said more than £1bn had been lost in schemes that later collapsed or entered financial difficulty.

This included the Mederco student accommodation development, Shepherd Cox hotel rooms scheme and the £73m Carlauren care homes project, all of which fell into administration.

The Serious Fraud Office is investigating Alpha Developments, and related companies, for suspectedly misleading investors and is also pursuing Gavin Woodhouse, director of the Northern Powerhouse Developments scheme, who sold care homes and hotel rooms. A total of £80m was invested in Mr Woodhouse’s schemes.

Some victims have tried to recover their losses by suing solicitors for negligence. Law firms had access to significant information through the Land Registry but failed to notify consumers that properties had been bought and quickly resold to them. Mr Sachs said: “Solicitors should have alerted purchasers to the fact this was an unusual transaction. They were purchasing an asset in a development which was likely to be an illegal scheme.”

Mr Benson urged consumers to be wary of schemes offering 10pc returns given much lower interest rates.