Property syndication's troubles surface in court

An investor has applied for the liquidation of a big South African property syndication scheme's holding company, City Capital SA Property Holdings, it was reported in the Weekend Argus on Saturday.

The Cape High Court has given interested parties until July 27 to tell it why it should not grant an application by Elma Taylor, aged 69 of Franskraal, to place it in liquidation - a move that is allegedly not expected to be opposed by the company.

City Capital, which has been the subject of a Financial Services Board investigation started earlier this year, had its financial services provider licence suspended last week, reported the paper. About R500m has allegedly been invested by mainly retired individuals in the property syndication, which faces collapse.

The report quoted Jurie Wessels, former chief executive, as placing the blame for the syndicate's woes on the acquisition of the troubled and larger Dividend Investments.

The latest court action will not come as a surprise to regular visitors to Realestateweb, which has been investigating syndications and issued warnings about the investment risks associated with these schemes - including City Capital.

In March, for example, Realestateweb - part of the listed Moneyweb group (JSE: MNY) - told how third-largest property syndicator Dividend Investments needed a rescue package and that its income-generating products were in jeopardy.

The products sold promised an unrealistic income yield, which escalates at 10% a year, on average. The rental income of the underlying property has been unable to meet this promise, creating a cash shortfall. For a time, City Capital subsidised income payments to investors through loans to the property companies at the prime interest rate.

The original promoters of Dividend Investments have washed their hands of the company. They are believed to be involved in diamond mining in Angola.

The trouble that's arisen raises questions about the competence and motives of brokers who sold the products of Dividend Investments. If the products were unsustainable, and the promises unrealistic, this is something the brokers should have picked up.

City Capital was until earlier this year subsidising the income payments to Dividend investors. It has done this in the form of loans, granted to the property companies at the prime interest rate. These loans totalled about R30m, and covered just over a year's worth of subsidies.

Capital Investments interim MD Bertus van Zyl told Moneyweb investigative journalist Julius Cobbett earlier this year that the subsidies were stopped at the end of January in the hope of persuading investors in the Dividend Investments syndications that a rescue solution was necessary. As an alternative to liquidation, he had proposed that the syndication companies be rolled into a new property fund (the argument is summarised here).

The proposed conversion would have required approval of 100% of investors, something Van Zyl conceded was unlikely as it was difficult to explain to investors that the conversion is in the best interests of shareholders.

Independent investigative journalist Deon Basson is most closely associated with public warnings about the risks associated with property syndications. He turned his concerns about the investment risks involving property syndication Sharemax into a personal crusade. Basson passed away last year amid a stressful battle with Sharemax.

Others that have issued warnings include Brent Wilson, editor of ITInews (read How to get your cash from Sharemax), and personal finance book author and adviser Magnus Heystek (read Beware of property syndicates - Heystek).

For a list of more articles on property syndications, type your search words into the Realestateweb search tool (top, right).

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Wonder maar net? Soos elke ding in die lewe het sindikasie sy plek. Die beleggers se geld kon in die grote Dynamic se geldmark ook gewees het of op die beurs met 'n 40% verlies. Dis net baie insiggewend dat in 'n wereld waar SA nie genoeg spaar nie, word hulle nie . .more gemotiveer om enigsins te spaar of te bele nie. Sommige spaarvoertuie word altyd oor die kole gehaal. Verarming kom met hoe inflasie en tyd. Die beleggers en adviseer het ten minste probeer om iets te doen om beleggers teen die koue inflasie oor 'n lang termyn te beskerm. Vat nou 'n belegging wat inkomste moet genereer (enige een) in Sharemax 10jaar gelede en vergelyk dit met 'n ander belegger se geld in die bank! Daar is geen vergelyking nie. Sharemax wen by verre. So wat is almal se probleem? Divident is net sleg bestuur, dit maak nie dat die eiendom van die aardbodem af verdwyn nie. Die meeste van die eiendom is puik beleggings wat sommiges net laer inkomste gee. As jy reken dat daar die grotes soos Anglo is wat in 80 jaar die eerste keer nie dividende uitbetaal nie - wat verwag jy van 'n langtermyn belegging wat nou in baie gevalle eers begin? . .less by Don on June 07 2009, 19:15 Find this comment inappropriate? Report it

Kommisie te hoog? Koop 'n huis van R1 000 000 en die bank soek 'n deposito van R100 000. Dan neem die agent 7% kommisie. So in die transaksie neem die agent 70% van jou geld betrokke by die transaksie. En niemand kla nie. Bele by 'n versekeraar R100 000 en die . .more gemiddelde agent neem 4%. En vyf jaar later betaal jy hom weer en so na nog 5 jaar...dit as daar nie nog 'n jaarlikse fooi ook bykom nie. Nou by sommige sindikasie kry jy gearing van tot 75% - op kapitaal beleggings. Jy kan kies waar jy wil bele. So jy bele R100 000 en dan word daar sonder om jou kredietrekord te benadeel 'n verdere R300 000 se geld by die bank geleen. Nou kry jy blootstelling in R400 000 se waarde in eiendom. So as die agent bv 5% kommisie kry op R100 000 dan werk dit uit 1.25%. Dis baie ver van 7% af. Selfs al is geen gearing betrokke nie. Is 6% baie laer as 70%. Nou wat hoor ek van kommisie jaag? Die eiendomsagent wat die woonstel aan my probeer afsmeer is meer in daardie klas as die makelaar wat die belegging in sindikasie vir my doen. Divident se beleggers kon net so wel 'n paar huise gekoop het of woonstelle. Wat se huurders nie betaal nie en waar geen kopers belangstel nie. . .less by Belegger on June 07 2009, 19:37 Find this comment inappropriate? Report it

Another one! There seems to be a lot of these scams. Please also be aware of the Proptunity syndicate, another bunch of thieves. by Koos on June 07 2009, 22:49 Find this comment inappropriate? Report it

@ Don,Belegger Your comments betray your ignorance. If you don't understand how crucial diversification is for a retirement portfolio, then you have no business peddling investment advice. by Verde on June 08 2009, 08:16 Find this comment inappropriate? Report it

Don, Belegger = same guy Oh, so if one industry rips you off with 7% then it is ok if you do it with 6%. If the politician steals R1m then it is ok if I steal R990k. Dont tell me you dont chase comm, why dont you advise on a diversified portfolio and only take eg 1% (4% is only . .more the norm for comm hungry salesman like you!)? Property syndication has its place in a portfolio but you salesman (not advisor) dont do tax calc's etc and sell it to every Tom D*** and Harry (mostly pensioners) for the 6% comm and not because it is the best product for that client. This happened in 2001 when everybody was selling offshore and two years ago when everybody went for small caps. You dont really know what is best for the client, you just sell what is best for your pocket. If Sharemax is so great why dont they speak to Moneyweb and answer some of their questions? Go and read what happened to the Leaderguard "advisors". . .less by Just asking on June 08 2009, 10:11 Find this comment inappropriate? Report it

@Don,Belegger I agree fully with Verde.If a Property Syndication goes soar the Sharemax's walk away and leave the property with the investors as so called security.Therefor it concludes that these Syndication companies is nothing else than a profit centre and an . .more administration hub. Example:buy land @ Rx, do a proposed developement proposal, look for private investors,sell the proposal @Rx fat profit to them...........then do the admin at lucritive rates.....if project fails......hands everything to the investor to sort out. . .less by Trader on June 08 2009, 10:28 Find this comment inappropriate? Report it

around the braai the reality is that those caught out are greedy! lets not kid ourselves here. it starts around a braai. some fool starts with the story about how he heard this and that... monday morning,even though the brandy and coke has worn off, its A for . .more away. listen to this...ANY scheme offering more than 2% higher than current bank rates over a short term is GUARANTEED to be a problem.... think about it carefully. money is made generally, with hard work and time spent. DON'T kid yourselves. remember the golden rule:....NOTHING FOR NOTHING! . .less by Super Duper on June 08 2009, 10:56 Find this comment inappropriate? Report it

Beware Guys beware of Timeshare. Also a rip-off. by VC on June 08 2009, 11:33 Find this comment inappropriate? Report it

Sharemax, PIC more of the same Pay brokers 6% and they will sell anything.... by Gemini on June 08 2009, 13:33 Find this comment inappropriate? Report it

Belegger Good luck with your syndication schemes. I trust you are a hands on investor by ea on June 08 2009, 14:55 Find this comment inappropriate? Report it

Competence of Broker I am sick and tired of the blame always been pushed to the broker and questioning their competence and motives. Where is the FSB. They always arrive on the scene after the damage has been done and then they want to make the brokers the scapegoats. It . .more is about time they get off their backsides and start doing their work. It should be investigated what role the FSB should have played in this and other failed institutions and how pro-active they were to prevent failures and loss of investment capital. . .less by G-vol Broker on June 08 2009, 21:53 Find this comment inappropriate? Report it

@GVBroker boet, its called due dilligence. why are the brokers getting involved in ANY scheme that comes their way? surely you guys , more than anybody else have the ability to smell a rat? BEFORE the project starts. we all hear what goes on, we can check on the . .more players involved. look at previous schemes.....surely.....why must the FSB come and play policeman? are you saying that brokers generally can't be trusted and they need to be regulated more closely? . .less by Super Duper on June 09 2009, 08:49 Find this comment inappropriate? Report it

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