There could be some serious implications for the Overseas Property Industry due to the recent crack down by UK regulator, the Financial Services Authority (FSA).
Seven land banking companies have been banned from trading and in many cases severely fined. The companies are believed to have breeched the Collective Investment Legislation, which according to property investment lawyer John Howell is “extremely vague.” This regulation could well snare even the most reputable overseas property agents.
Stowford Place Investments, Consolidated Land, ASA Global Investments, Prinston Estates, Alpha Capital Investments (London), Greenacre Global Partners and Vinci Trading are the seven companies that have already faced winding up orders by the High Court in the past few months. Consolidated Land’s director has been hit hard with an order to pay an interim payment of 920,000 GBP in compensation to victims awaiting a full trial.
Collective Investment legislation
The land banking products the seven companies had sold were deemed (by the FSA) to be collective investments and therefore the companies should have been FSA authorized to sell them, however, they were not. Because the companies were not authorized by the FSA the transactions were deemed illegal and the companies were banned from trading and the directors become subject to hefty legal bills and fines.
According to international property lawyer John Howell, the definition of a collective investment scheme is “extremely vague”. At its most basic a collective investment is one where income is pooled, the most common example being a fund.
However in this case, most of the investments concerned had no income at all. The vague rules allow for land and property investments to be defined as collectives where there is no clear separation between the sale and the rental of the product. In other words if the sale and the rental of the product is done by the same company, the product could fall under these restrictive rules.
One of the key issues is control. If a property or land buyer has no choice over who rents their asset, the investment can be deemed a collective. In the case of land banking, the buyer is dependent on the land banking company to help them get planning permission (and therefore income) and so the product is deemed a collective investment.
In recent months the FSA have stepped up their actions against companies selling certain types of investment properties. The risk is that a whole range of overseas property and international investment products will be “swept into this black hole in a frenzy of regulatory activity” according to Howell.
For further background on the legislation see our recent article here and also the FSA website. You can also contact John Howell at john@jhco.org for further advice. John Howell is currently leading an industry lobbying group to clarify the issues around collective investments for the industry.
http://ping.fm/Yu7FV
Sourced: http://ping.fm/xmBsc
No comments:
Post a Comment