The latest sham property scheme targeting overseas investors

There is no ‘one size fits all’ method with these matters and the sooner investors instruct legal experts, the more likely of a return.

Daniel Thomas | Partner and Head of Litigation

By Daniel Thomas, Partner and Head of Commercial Litigation

Over the last 12 months, we’ve seen a huge spike in overseas investors being targeted to invest large sums of money in property schemes, with the promise of significant financial return.

Property schemes are usually an attractive, low-risk offering for overseas investors, as they come with the benefits of dual income and the security and stability of bricks and mortar assets.

However, we’ve seen since seen a rise in cases whereby it’s clear that the scheme operator had absolutely no intention of ever finishing the development, and/or paying the investors the funds they committed to upon signing the contract.

How to spot a fake property scheme

Each case we’ve looked at seems to follow the same series of events (and looks suspicious from the outset!):

  1. The scheme operator sets up a special purpose vehicle (i.e. a limited company set up for a particular development which has limited assets) to be the forefront of the development;
  2. The scheme operator purchases an easily divisible property such as a hotel or student accommodation;
  3. The scheme operator then divides the property into rooms to sell to individual investors;
  4. Until all rooms are sold the investors are paid interest to give the impression that the scheme is still under development.
  5. Once all the rooms are sold the scheme collapses and there is no money left to pay to the investors.

How does this work?

A real life example of how this works can be illustrated by a recent matter we were instructed to work on.

A group of overseas investors in Hong Kong were approached to invest in an alleged apartment block in the metropolitan city of Manchester, advertised as being in an “affluent area with superb travel links to the city centre”. Each apartment was sold with the view of being an investment property which would obtain significant rental value.

In reality however, what existed was a long-standing hotel situated on the back street of a quiet area of Manchester. The scheme operator had no planning permission to develop the hotel into the advertised apartment block. We discovered that the property had undergone no development and was indeed still being advertised and ran as a hotel.

How did Primas help?

Our instructions were from a group of investors and so, we set up a company for those who wished to represent the investors.

It soon became apparent that the scheme operator had transferred the development to a connected company at a significant undervalue. We suspected that this was done in an attempt to remove all assets from the scheme operator so that no monies would be payable to the investors.

We successfully made an application to court for an order which transferred the ownership of the property to the investors.

At this point, the investors are in discussions as to whether they will arrange for the property to be developed into the promised apartments or whether they will arrange for the property to be sold. Either way, the investors are able to regain at least some of the monies which they paid to the scheme operator. The investors have also been awarded costs against the scheme operator.

Do you think you might be in a similar position?

We often are instructed by individual investors and /or groups of investors who simply do not yet know what has gone on. The instruction starts with an analysis of the documentation that they have, a review and possible site visits of the property in question and from there we ascertain the best route forward for the specific individual or group.

There is no ‘one size fits all’ method with these matters and the sooner investors instruct legal experts, the more likely of a return. As detailed in the matter above, we have much success in acting on behalf of these investors and are well experienced in proceeding against scheme operators.

It is, however, somewhat disappointing that these scheme operators continue to con people out of their money in a UK system that off-shore investors think is a secure place to invest.


If you have invested in a sham property scheme, or know of anyone who has, please do not hesitate to contact us to discuss your matter at Daniel.Thomas@primaslaw.co.uk.

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