Property Reporter

COMMERCIAL property body the South African Property Owners Association (Sapoa) says there is concern about the re-emergence of property syndicates because there is no official watchdog to control them.

Sapoa CEO Brian Kirchmann says the organisation believes legislation is needed to enforce controls and legal cooling-off periods for such investments.

Kirchmann believes that syndication is good in principle, but it should be regulated and monitored.

He says he has no problem with a syndicate if it involves a group of people who decide together they want buy a stake in a building. But there can be problems when one person or a company owns a building or a couple of buildings and decides to syndicate the building by putting an offer to the public and inviting them to invest in it.

Kirchmann says some unscrupulous owners of large commercial buildings sell shares to unsuspecting people, for example pensioners. Buyers' expectations are raised, then they are disappointed or lose their money.

Sapoa would be happy to work with the Financial Services Board (FSB) and the registrar of companies on putting a watchdog body in place.

Kirchmann says the FSB and registrar of companies set up a channel many years ago through Sapoa's Public Property Syndication Association to monitor suspect deals, but this fell away when the governmentoperated Fair Business Practices Committee ceased operations.

He says that two or three years after the Public Property Syndication Association was set up syndicates dwindled as they were then well monitored.

"Syndicates had to go through the syndication association, and had to produce documentation because they did not have a public prospectus.

"We examined the documentation, and if it was above board we would say go ahead."

Kirchmann says that the syndication association simply did not have the legislation to give it the teeth required.

The association had to report any misdemeanour to the Fair Business Practices Committee, he says. This would then go to the police, who in turn would halt the operation.

After syndications dwindled the Public Property Syndication Association was "packed up" and mothballed because it was of no further use.

But with the renewed popularity of syndicates on the back of the booming property market, Kirchmann believes that a watchdog body is once again necessary.

Jurgen Boyd, FSB head of collective investment schemes, says his board has "certain concerns" about property syndicates. "We've had initial internal discussions about the appropriate regulatory platform for property syndication."

Boyd says the FSB does not regulate property syndicates because in the main they are structured to fall outside the regulatory environment of the body. Most property syndicates operating as private or public companies are subject to the Companies Act.

In the past, the FSB halted property syndicates structured in contravention of the Collective Investment Schemes Control Act. Boyd says property syndicates that want to be collective investment schemes have to "comply with the onerous requirements of the Collective Investment Schemes Control Act". This makes structuring them as collective investment schemes less attractive.

But Boyd says all intermediaries who advise on and market property syndicates are subject to the Financial Advisers and Intermediary Services Act requirements, in terms of which they must be registered and approved by the FSB by October 1.

"Given the wrong advice by an intermediary, an investor will have recourse through the office of the financial advisers and intermediary services ombudsman," says Boyd.

Jul 21 2004 07:47:28:000AM Nick Wilson Business Day 1st Edition