Some have said that the arguments were too theoretical. Yes, they have great faith in these companies. Why would these companies want to 'cheat' investors? Some of these companies have very big operations and they look to be very well established, so it should be quite safe. Really? Let us consider the real life example of Opal Property Group.
Opal Property Group
This company was founded in 1998, by a chap named Stuart Wall. It went on to become the largest provider of private student accommodation in the UK, providing accommodation for more than 20,000 students. This is a snapshot of is website.
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| UK's largest Student Accommodation Provider |
In March 2013, it was revealed that Opal was in trouble. One of its subsidiaries, Ocon construction, was to be put into liquidation. It was then revealed that all the other companies had their funding extensions from finance companies withdrawn and the entire group was insolvent. To cut the long story short, Opal's entire group of companies went into group administration.
How Did This Come About?
Apparently some investments done by this big company went awry. Creditors are now going after the company. As of writing, Opal Property Group, the largest private student accommodation provider in the UK, is under group administration. The founder is now trying to take legal action against lender Royal Bank of Scotland for an interest rate swap product behind the collapse of this business. According to this article, the Group has £886m in debt.
Learning Points For Investors
Let me re-iterate the most important point from my earlier blog post - what exactly do you own if you invest in these student accommodation products?
Obviously, you do now own any title deed. Even if you think you do, it is some legal device that has been artificially created, that gives you very little, if any, rights.
Implications
Which means you are at the mercy of the company. Even the largest student accommodation provider in the UK could go into group liquidation. What makes you think that these smaller companies are any safer? If things turn out well, good for it. However, if things turn sour, what is your exit plan and what are your rights?
Think very carefully before you invest in these products. You have been warned.
Some References:
Opal Group - wikipedia
Ocon Administration Due To Operational Issues (8 March 2013)
Opal Property Group Considers Asset Sell-off (31 Jan 2013)
This sound like the resort time sharing schemes. The purchases were given time sharing rights to have access to the resort facilities for a limited time every year for the next 20 years. What was not stated is what will happen if the resort is in liquidation or some sort of being in a sorrow state of repairs. Purchasers were just given a contract and not a title.
ReplyDeleteAbsolutely right. Imagine this. I set up a company called Guitar123 pte ltd. You pay me 50k upfront and I promise you 5% return per annum. I get all the paperwork done so we have a binding legal contract. Would you contract with me?
DeleteThe title deed is the supposing collateral and it is not included. Paperwork contract is just a another piece of paper unless it is guaranteed by assets. Just a wild imagination, I take your 50k and promise to pay you 5% pa. I use your money to loan shark and make 5% every month. Come to end of the year, I will still pay you 5%. Make good business sense except it is the money I make, the risk is yours. If I fail, I close my company and you can sue my pants off. The legal fees is much more than the sum invested, so you won't have the incentive to carry it through.
ReplyDeleteThis remind me of another scheme. There's this company who sell land in Canada and promised returns of 12% guaranteed returns. Many Malaysian investors took part. Then the master title holder charged the land to the bank and defaulted with all the money. The land owner made 2x the value the land, one from investors and the other from bank. Investors wanted to cry but no tears. They have no one to turn to. They can't even sue as there's no one to sue except an empty address. They lost it all. Lesson to be learnt: What you can't control and see, do not invest blindly.
Funniman, well said, you are wise. Those land banks are the worst. Outright scams.
DeleteHi, you explained the topic very well.
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i really glad to read this article and Opal Property Group of company are doing good for the student i appreciate to this company..
ReplyDeleteand let me know the charges of separate accommodation..
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