How to spot an off-plan swindle

Purchasers of off-plan properties should be wary of developers asking for more than a 10 per cent deposit, warns property litigation specialist Alex Jakubowski.

Alex, partner at law firm Clarke Willmott LLP, says homebuilders asking for high, non-refundable deposits for so-called ‘buyer funded’ developments may not be all they seem.

“A deposit in a property transaction would normally be no higher than around 10 percent,” said Alex who acts for a number of lenders and victims of property fraud in the UK and overseas.

“In dubious schemes we have seen so-called deposits ranging from 30 to 80 percent. This is not a deposit, but rather a high-risk payment of the price in advance.”

Alex says potential investors should also beware of developers offering ‘astronomical’ returns on the purchase once the project is finished.

“Anyone offering high yields for one year, let alone three years – and even more so when the figures are precise or guaranteed – should be given a wide berth,” added Alex.

“Test the figures and check whether they add up. If it sounds too true to be good then, as they saying goes, it probably is.”

Recently a scam by Absolute Living Developments left 300 buy-to-let purchasers who bought new build homes in the north of England £12m out of pocket.

Typical off-plan investment models include flats, hotel rooms, care homes and student accommodation.

Foreign investors are frequently targeted because they want to get a foot on the UK property investment ladder without being present to manage their investment, and expats as a way to provide an income in retirement or to live in upon their return.

“Schemes like this are proudly sold by estate agents and property investment advisers and advertised on impressive websites and glossy brochures.

“They will even offer a ‘safe exit strategy’ for investors worried about ending up with property that has inflated values which no-one will pay.”

Alex, who has acted for investors in schemes across the country, says the fraudsters do not just prey on the vulnerable and inexperienced; even seasoned investors get caught out.

“Be under no illusion, fraudsters are out there. There are smart, they are greedy and they will target any soft mark.

“What once relied on sleight of hand and the gift of the gab, has been supercharged by smart websites and superfast communication.

“Scams are like viruses. They are constantly mutating and evolving so as to avoid the checks and balances put in place by regulators and the police.”

Alex says the scams are compounded by the professionals who investors rely on who fail to protect their clients, or worse still are complicit or reckless as to their interests.

“Solicitors should be warning about the risks associated with the specific scheme and the particular seller, and the options available for mitigating the risk.

“And agents advertising on investment schemes, may not be party to a swindle, but may have no interest in the purchasers and their welfare, nor the seller either.

“Sadly, scams work on trust and convention and this goes all the way down the line.”

How to protect yourself:
• Apply common sense and don’t be blinded by the deal
• Do your homework and look at the small print.
• Check that the figures add up
• Check on the seller and the individuals and or organisations behind it
• Research the scheme and look at official sources
• Use your own trusted law firm and not just the cheapest you can find

Alex Jakubowski specialises in general commercial litigation and has particular experience with , professional negligence, fraud, corporate litigation, contractual disputes, financial services disputes and IT disputes.

Clarke Willmott LLP is a national law firm with seven offices across the country, in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.