For those not in the know, Harlequin Property offer overseas property investments, in a series of developments, based mainly in the Caribbean and South America and promoted by a number of celebrity endorsements.
All seemed well until recently, when a series of stories in the national media revealed that several of the developments had not been started and income payments to investors had stopped. Since then the Serious Fraud Office has revealed they are investigating Harlequin Property, as are Essex police and the company has made one out of court settlement to a group of investors.
For other investors in Harlequin this is a worrying time, for all other investors it teaches us some valuable lessons.
Lesson #1: Be careful with unregulated investments
Unregulated investments, as the name suggests, are not regulated by the Financial Services Authority (FSA). Typically these are property based, but can also involve land, commodities, carbon credits, plantations, in fact almost anything.
Not only do they generally carry a far higher degree of risk and are therefore only suitable for a minority of experienced investors, being unregulated means there is nowhere to turn if it all goes wrong.
Investing in a regulated product, such as an ISA (Individual Savings Account), a Pension or a Unit Trust, gives you a certain degree of protection; if you wish to make a complaint you have various routes available to you, including ultimately the Financial Ombudsman Service (FOS).
Investors in unregulated products have nowhere to turn if it all goes wrong.
Lesson #2: Always use an FSA regulated adviser
If you really must consider an unregulated investment, then take advice from an Independent Financial Adviser (IFA), regulated by the FSA, before you take the plunge.
IFAs are now highly trained and will be able to talk you through the pros and cons of a particular investment. They also have to adhere to the rules and regulations imposed by the FSA and have to maintain suitable Professional Indemnity insurance.
If you buy an unregulated investment through an IFA and it turns out to have been poor advice, you can take your complaint to the IFA themselves and ultimately the Financial Ombudsman Service (FOS); this is not an option if you have bought an unregulated investment, through an unregulated broker, you simply have nowhere to turn.
Lesson #3: Don’t borrow money to invest
We’ve spoken to a number of Harlequin Property investors who have borrowed money to invest; either in the form of personal loans, or mortgages secured against their property. The interest on these loans was being met by Harlequin, but these payments now seem to have stopped, leaving the investor with an outstanding loan, on which they must make repayments and an investment which they cannot cash in or surrender.
With the exception of a buy to let investment, there is a very simple rule for those people thinking about borrowing money to invest, don’t do it!
Lesson #4: Due diligence and research is vital
Before buying any property, whether here or overseas, a significant amount of due diligence should be undertaken.
We deal with many clients in the UK who buy commercial property in their SIPP (Self-Invested Personal Pension). Before the property is bought a huge amount of due diligence, including surveys, environmental reports and Land Registry searches, is done to make sure that all is in order.
The same due diligence should be undertaken for property or land bought overseas, whether it is being bought direct from the vendor, via an agent or as part of a property scheme. There are of course barriers to doing this due diligence, language and a different legal system being two which immediately spring to mind, but that doesn’t mean it shouldn’t be done; in fact it makes it even more important.
Thorough due diligence could be the key between an investor making a profit or a costly mistake.
Lesson #5: Be careful buying property overseas
We’ve previously written about the problems of buying property overseas, whether in your own name or via a SIPP.
From basic problems such as differing legal systems, the language barrier and currency fluctuations to more complex issues, buying property overseas is fraught with dangers even for the most experienced investor.
Lesson #6: Avoid transferring from final salary pensions
Amongst the Harlequin Property investors we have spoken to, are a percentage who have transferred Final Salary or Defined Benefit pensions into SIPPs.
We also regularly speak to would-be investors, who have such pensions and are keen to transfer them into a SIPP, to then invest in other unregulated schemes.
We’ve said this before and we’ll say it again, it is rarely, if ever, sensible to transfer money from a guaranteed and index linked Final Salary or Defined Benefit scheme, into an alternative pension arrangement where the returns are not guaranteed.
Many people who ask us about transferring from such schemes, claim their pension isn’t “working for them”. There certainly seems to be a misconception that Final Salary schemes, resulting from previous employment, just sit there gathering dust until you retire; this just isn’t the case.
Lesson #7: If it looks too good to be true….
No matter how glossy the brochure, looks how persuasive the sales patter is, how cast in stone the ‘guaranteed returns’ are, if an investment looks too good to be true, then it probably is!
Questions or queries
Feel free to get in touch with one of our team of Independent Financial Advisers if you would like advice on your options, are concerned about any of the issues raised in this article or you have invested in Harlequin Property.