Ghost bidders, ghost property profits
This week in our wrap of real estate news: Property investing can be a dirty business. Take the shenanigans that go on behind-the-scenes at auctions, or returns' projections concocted out of thin air by property syndicates.
Puffing up the price. Fed up with that unspoken practise, covered by some auctioneers in their fine-print, where ghost bidders bump up the price on that property you've been eyeing? Its days may be numbered.
Sunday Times veteran auctions' journalist David Pincus revealed at the weekend that a lawyer has been digging through old cases and hints that legal action may be on the cards for auctioneers who use this method to push up prices.
According to Bill Hartard, of fixed property specialist Segoale Property Mart, an "attorney has discovered a case dating back to December 1861 which applies to auctions". In Van den Berg versus Du Toit, the auction of a farm was stopped because the auctioneer had bumped up prices using ‘puffers', known today as plants or ghost bidders. The judge at the time, declared puffing was wrong, declared it illegal and cancelled the sale.
Hartard reckons "no subsequent, or similar, case had challenged or amended that judgment, ‘which is still held as the law'." The theory now is that an unhappy buyer who can prove an auctioneer's plants bumped up a price may be able to prove a sale is fraudulent and illegal. That, in turn, points to the sale being declared null and void with the auctioneer having to refund the purchaser.
No doubt there'll be a few South African auctioneers trembling in their socks at the prospect that their ghost bidders might come back to haunt them.
Puffing up the price on paper. The early predictions of premier financial journalist Deon Basson - who passed away amid a tense, ugly battle with property syndication company Sharemax - that syndications would inevitably topple because the underlying models are flawed are coming to pass. Barely a week goes by these days without news emerging of another property scheme unravelling, at huge cost mostly to unsophisticated investors.
The King Group, which was liquidated in the High Court in Cape Town last month, has apparently left at least 10 000 people in dire financial straits. The Sunday Times tells us many people mortgaged homes and then used this money to invest with the King brothers. So confident were agents and brokers in what they were selling that we hear one broker ploughed more than R1m of his own money into King products, believed to be invested in houses and shopping centres.
Our favourite Sunday tabloid pictured the beaming King brothers in happier times before Paul committed suicide rather than face the proverbial music.
The Sunday Times quotes Adrian King blaming the liquidators for the woes of the 95-odd companies that collapsed, taking R680m with them. "Everything's still there. Every cent is physically lying in property, and the property is there, it hasn't vanished," he said.
Judge Dennis Davis, however, thinks otherwise. He dismissed the King family promises as "Alice in Wonderland" claims.
Johan and Hennie in Wonderland. Turning to Pretoria, more property fairy tales have recently been unfolding in the North Gauteng High Court. There, an outfit called Bluezone's antics are the centre of attention. Hennie Lamprecht, Blue Zone's chief executive, and Johan van Zyl, a director, allegedly bought on behalf of Bluezone's investors a piece of land from, wait for it, a company in which they were also directors. Blue Dot allegedly sold a piece of land bought for R1m to Bluezone for a whopping R118m.
Hennie, a Financial Services Board report found, pocketed just over R95m in this transaction. Johan got a more modest R5,5m.
More than R350m was raised from investors during 2006 and 2007. Where is that money now? At least R260m is believed to be irrecoverable.
Going once, going twice. Some dogs just won't lie down. City Capital Investments, we hear this week, has been the subject of court action for liquidation for the second time. Lawyer Juliette Langford of Edward Nathan Sonnenbergs said this week that the second application for the provisional liquidation of the property scheme was finally granted.
The company is unable to pay its debts including amounts owing in respect of "advertising costs incurred by auctioneers, services rendered by property valuers, suretyships in respect of bank loans and, of course, the outstanding payments which may be owing to investors"
City Investments, meanwhile, has already been liquidated. City Investments was essentially running the show and its liquidators put the wheels in motion for the second City Capital liquidation attempt.
Langford tells Tabloid Tuesday more liquidations in this whole saga can be expected, as the liquidators move on the various property companies under the City Capital structure.
As usual, dozens of pensioners are the victims in this shameful tale after being persuaded to invest in assets they believed would produce a steady income stream. But, property schemes are not direct bricks-and-mortar investments. The properties are usually tangled in complicated contracts and, as they say in the classics, all is not what it seems.
Pensioners thought they were receiving annuity income from rentals earned on the underlying shopping centres and properties when in reality City Investments was buying their shares and paying them for steadily eroding their capital.
With most of these shopping centres apparently real "dogs", it is unlikely these pensioners will see much of their money back. As shareholders, they are at the back of the begging bowl queue. About R300m was ploughed into this syndication operation by individuals.
All the shady goings-on in property syndications makes the alleged puffery in operation at auctions seem like child's play.
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Comments
I REMEMBER CLEARLY BIDDING FOR A CAR AT ISLAND CENTRE,PAARDEN ISLAND,AN AUCTION RUN BY MR JONATHAN S==T,THE ONLY PERSON I WAS BIDDING AGAINST WAS THE SELLER OF THE CAR,WITH THE AUCTIONEERS FULL KNOWLEDGE,NOW THIS PERSONS SELLS HOMES IN MULTIPLE . .more
by vic1 on September 08 2009, 17:37
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This doesn't really come as a shock, property indicates should be banned.
by pietie on September 08 2009, 20:40
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Nobody forces a bidder at an auction to raise his price.
The judge in your 1861 case was governed more by outraged morality than commercial saviness.
Auctions are a free-for-all and the problem with many potential buyers is that they think . .more
by Plutarch on September 08 2009, 23:58
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the real fraudsters in the SA market are, in order of descending importance:
* banks
* banks
* banks
* estate agents
* journalists with a penchant for a pay-off
* banks
* ponzi schemes ( supported by banks)
* ag , . .more
by Plutarch on September 09 2009, 00:01
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It's just the way people are
by Munch on September 09 2009, 07:50
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Does anyone know what the story is with I Grow Wealth?
by wanna know?? on September 09 2009, 08:32
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and I am looking for a new one to get involved in, remember its 2009..
by bubblehead on September 09 2009, 09:08
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Crooked auctioneers with fake bids and crooked property syndicates ... both screwing the mindless public who fell for the lie that you can't go wrong by putting your hard earned saving into bricks and mortar ...
by CJ Says on September 09 2009, 23:50
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I recentl;y attended a Claremart auction run by Jonathan Smiedt and Andrew Koch. The puffing and ghost bidding was so apparent and I felt embaressed for the auctioneers.
There should be a law against this as this can amount to fraud.
by WTF on September 10 2009, 06:24
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All these property syndications make huge profits from exploting retired investors how can they get FSB licenses to exploit pensioners? See http://www.talkmoney.co.za for latest syndication articles.
by Stephen Leppan on September 24 2009, 22:44
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