Developers and investment companies are enlisting high return guarantees, which are unsustainable in the long term, to attract investors to pay over the market value for properties, said Charlie Cunningham, CEO of property developer FreshStart Living.
“Many developers are enticing investors to buy overpriced properties by advertising high net yields for just one or two years. But those guarantees are rarely sustainable, meaning that investors are often left with a useless property from which they will not only struggle to generate a reasonable level of income but they will also struggle to resell,” said Cunningham.
Cunningham is calling for the Advertising Standards Authority (ASA) to monitor how the properties are advertised.
Developers are also offering student investment opportunities on the Internet with high initial purchase prices – but they are drawing investors in by advertising high net yields of 10% for two years, he said.
However, these yields can’t be realised past the guarantee period and the investor will lose out, he added.
“There is no way that a student pad which costs an investor £50,000 can continue to generate a net yield of 10% past the first year. As tuition fees are rising, students will become a lot savvier about how they are spending their money. So these student developments which charge students upwards of £100 per week will inevitably see a drop in demand.
“It is no small issue, the internet is full of these types of Ponzi scheme style investments and thousands are being sold to investors every year. They are ploughing money in to overpriced properties and it will eventually contribute to the next recession, while just a few developers prosper.”
He said that if a rental guarantee scheme is on offer, he wants the developer to indicate how long the guarantee is for and go on to substantiate how the investor can continue to achieve yields after the guarantee period is up.
