In a recent action against a property investment scheme, Monetary Authority of Singapore has placed Brazilian property developer Ecohouse on alert list. An investor who invested $46k in Mar 2013 has not received any payments. In late 2013 there were already various complains from the Singaporean investors and some are considering legal action.
Ecohouse offers investors a 20% fixed rate of return for a 1 year commitment. Basically how it works is that the investors will first buy the house while it is being developed and then make the returns when the unit is resold to a Brazilian buyer at a higher price.
An EcoHouse Project
This is not the first controversial issue with property investment schemes. There have been many other cases, many of them being landbanking schemes, such as Edgeworth Properties which was a land banking scheme. If one bothers to look online, you can already see a ton of cases, so why should this be any different? It is a wonder people keep piling money into such get rich quick schemes.
Property Investment Schemes Are NOT Equivalent to Property Investments
This is where most property investment scheme salesmen try to sell you. These schemes are more similar to structured investments which promise some kind of payout based on certain scenarios. Generally, the investor does not own the property directly, just a contract with the company while the company continues to hold the title deeds. A direct property investment however works on the principle where you own the property directly and engage agents to manage it for you.
Understanding Risk Levels
For returns of 20% in a year, this should be classified as a very high risk investment. Since the investment is so risky, retirees definitely should not be involved as they do not have the ability to earn back the money. In fact, such property investment schemes should be regulated the same way as other high risk hedge funds, structured products which are only available to the accredited investors. To get property exposure, a good alternative is look at Real Estate Investment Trusts (REITs).
Are The Returns Attractive Enough For The Risks?
So for a property investment, you are subject to market risks, but for the investment scheme, not only are you subject to market risks but also risks of the company going under. Also the returns for a direct property investment can be a lot higher than an investment scheme. Of course the investment scheme promises the returns to be hassle free where they manage it all for you, but if you are not willing to put in the time and effort to manage your investments, why dabble with properties?
Be Skeptical With Every Investment Opportunity
At the end of the day, always explore every investment with a skeptical mind. Why does a Brazilian developer need to go all over the world to raise capital to develop properties? If this is a Brazilian government initiative, shouldn’t they appoint a more established developer with the capital to carry out all the investments? If the scheme fails, what legal recourse do you have? (Probably none since they are not based here, Singapore law will be unable to touch them in Brazil) With all these questions in mind, would you still invest?