October 19, 2004

By Roy Cokayne

Pretoria - An investigation into public property syndication scams has been launched by the consumer affairs committee at the trade and industry department.

Ebrahim Mohamed, the director of consumer investigations at the department, said these syndicates were coming under under fire for defrauding unsuspecting and inexperienced investors.

Mohamed warned the public and small investors to be careful about getting caught up in public property syndication scams.

Direct investment in retail, commercial and industrial property used to be the preserve of large institutions and wealthy individuals.

Smaller investors were excluded by limited capital and insufficient time and expertise to manage the investment.

But Mohamed said the chance to invest directly in property through acquiring shares in property owning investment vehicles, whether they were companies, partnerships or close corporations, had been developed in public property syndications, an alternative investment concept that was now under investigation.

In public property syndications, members of the public were invited through the use of electronic and print media to participate in such schemes.

Mohamed said public property syndication comprised the assembly of a group of investors who pooled their funds to invest in a company whose sole asset was a commercial, retail or industrial property.

"By so doing, investors share in the profits and losses of that property and enjoy the benefits of net rental growth through proportionate share of income, together with such future capital growth as may be reflected by the increased value of the shares held by the investor.

"Capital growth is achieved in the increase in share value and is realised on the sale of the investment. As with any property investment, the real benefits are gained over time, and property syndications are long-term investments.

"They perform best over a minimum period of five to seven years," he said.

But Mohamed said it was relatively easy to mislead consumers when marketing public property syndication.

"The property could, for example, be sold at an inflated price to unsuspecting investors, or investors could be left in the dark regarding the terms of the rental agreements."