Beware this property swindle!

Tens of thousands of people have been conned by this simple scam.

In the run-up to the property bubble which abruptly burst in the autumn of 2007, I became increasingly worried about property-related scams.

With house prices rising every year from 1996 to 2007, Britain developed 'property mania' on a scale not seen since the heady days of the late Eighties. Of course, as more and more people jumped onto the buy-to-let bandwagon, a growing crowd of con artists was waiting to fleece them of their life savings.

A colossal con

One notorious scam was run by Gateshead-based Practical Property Portfolio (PPP). This company recruited investors with at least £18,000 to spare with promises of guaranteed returns of 15% a year from refurbishing and letting buy-to-let properties in the North East.

Alas, PPP was one big con, as the properties it purchased for investors were worth far less than claimed. Following a wave of complaints to Trading Standards, the police raided PPP's offices in March 2003. A year later, PPP and ten linked companies were forcibly wound up in the High Court.

Related how-to guide

Avoid scams and rip-offs

Worried about getting caught out by a scam or rip-off? Find out how to protect yourself.

See the guide

Field of dreams

When property prices started plunging as the credit crunch took hold, many property scams and 'get rich quick' seminars died a quick death, thanks to dwindling consumer demand.

However, one property scam is still going strong: land-banking. This involves selling small plots of 'prime' land to investors, on the basis that plot values will rocket when the area is sold to property developers.

There are three big problems with land-banking groups:

1. What land they do own doesn't have planning permission and is never likely to get it;
2. Usually, these plots are nothing more than unused fields in the British countryside or 'green belt’ zones; and
3. Sometimes, the land-banking firms don't even own the land they're selling.

In effect, land-banking involves paying, say, £10,000 for a plot of grass in the middle of nowhere which is surely worth a tiny fraction of this purchase price.

While the authorities are often slow to react, they usually get their man. For instance, in June 2008, the FSA went to the High Court to wind up United Kingdom Land Investments (UKLI), the UK’s biggest illegal land-banking scheme. Sadly, this was after 4,500 investors had spent a total of £69 million buying 5,000 plots of grass!

Cable in court

Even after the closure of UKLI, land-banking firms still spring up like weeds in the fields they sell.

Just last month, the government presented winding-up petitions in the High Court for six land-banking outfits. In A-Z order, the six companies are:

• Alpha Capital Investments (London);
• ASA Global Investments;
• Greenacre Global Partners;
• Prinston Estates;
• Stowford Place Investments; and
• Vinci Trading.

These petitions were presented following confidential enquiries by the Company Investigations team of the Insolvency Service, on behalf of the Department for Business, Innovation and Skills, overseen by Business Secretary Dr Vince Cable.

Related blog post

• Tony Levene writes:

  Shun this shiny scam

  Tony Levene is offered the opportunity to invest in gold...

  Read this post

In these cases, the FSA reckons that £45 million of investors' money is at risk. In addition, the City watchdog is monitoring the activities of at least 20 land-banking firms, so we should expect more court cases. Clearly, this shows that the British public has yet to learn from UKFI's collapse.

Learn from these mistakes

It's important to note that the FSA does not regulate the sale of land, so it intervenes only when firms appear to be operating an unauthorised 'collective investment scheme'. Even so, when companies sell plots of land and offer to win planning permission, they are likely to fall foul of the FSA.

Even worse, unauthorised operators of collective investment schemes are not covered by the Financial Services Compensation Scheme (FSCS). Thus, when land-banking firms are exposed as scams, there's no government-backed safety-net to fall back on.

Hence, the Serious Fraud Office (SFO) offers this advice to property investors:

• Never buy a property without seeing it first;
• Never rely on what the people selling the property tell you; instead, always view similar properties in the area to compare valuations and rentals; and
• Use your own professional advisers, including solicitors, valuers and so on.

In summary, tens of thousands of people have lost hundreds of millions of pounds by investing in land-banking and other dodgy property schemes. Don't be their next innocent victim!

More: Try our magnificent mortgage service | Why you might be one of Britain's secret tenants | Don't lose out when businesses die