On Sunday the Manchester Evening News published an article entitled “It’s not just for houses – unusual things on Rightmove that you can buy or invest in“.
Unusual isn’t the word I’d use. All of the investments are extra-high-risk or ultra-high-risk, with the majority being individual – as opposed to collective – investment in land plots.
(Although I couldn’t help wondering why on earth you would buy a former bank on the basis that “it could potentially be converted” when it is Grade II listed and therefore potential for conversion will be strictly restricted. The selling agent states “if you buy this property and don’t rent it out to a tenant – you don’t have to pay business rates” – which is nice, if we ignore the fact that if you don’t rent it out to a tenant, and you aren’t a bank and can’t use the property yourself, you can’t make any money from it either.)
Halfway down we come to hotel rooms, which according to the article, “If you aren’t quite ready to take on a buy-to-let property, but want to invest in brick and mortar- this could be the perfect solution.”
The perfect solution after discounting regulated mainstream REITs or unit trusts, diversified over a range of bricks and mortar commercial properties? No, just “the perfect solution” apparently.
For £80,000, an investor is offered an annual return of 8% and 110% buyback at the end of year five.
Fees are paid monthly and according to Katar Investments, there are zero ownership fees.
Nowhere in the article does it point out that the annual return of 8% is dependent on the financial strength of the company backing it, presumably Katar Investments. The same is true of the 110% buyback.
Nor does the article point out that should Katar Investments becomes unable to pay the promised 8% return, investors will be dependent on the hotel keeping their room occupied if they are to see any yield. And that it is not clear why the hotel would put guests in investors’ rooms when it won’t get the guests’ money, and it may have its own rooms to fill up before it fills up any rooms belonging to others.
Nor does the article point out that if Katar Investments is unable or unwilling to buy the hotel room back after five years, investors will be relying on the secondary market to get their money back. External demand for a room in a building to which someone else controls access is extremely limited. And it is questionable why anyone would want to buy a second-hand hotel room, when they can get one from someone like Katar Investments offering a guaranteed yield and a buyback option.
In fact, the word “risk” is only mentioned once in the article – at the very beginning: “Would you take a risk on any of these?”
Arguably the MEN article crosses the line from mere journalism into a financial promotion.
Obviously simply writing about unregulated investments isn’t in itself a financial promotion (*points to disclaimer at the bottom of this article*). The distinction is found in the Financial Services and Markets Act, which states that a financial promotion is an “invitation or inducement to engage in investment activity“.
The MEN article crosses the line from talking about unregulated investments to inducing people to invest at least twice:
Investing in some of these could seem a little bizarre, but if you get your thinking cap on, there’s potential to make some serious money.
This [the Katar Investments hotel room investment] could be the perfect solution.
This means the article becomes subject to the law on financial promotions which states that such promotions must be clear, fair and not misleading.
The lack of any real risk warnings when describing the hotel room investment, or the other investments, means the MEN article clearly fails in this regard.
The Financial Conduct Authority’s financial promotions rulebook states that a financial promotion must “be balanced and, in particular, not emphasise any potential benefits of a product or service without also giving a fair and prominent indication of any relevant risk.”
Promotion of the failed Store First investment
Incredibly, in the original version of the article this wasn’t even the worst case in the article of an investment promoted without all the facts.
The original promoted a Store First pod which was on the market for £2,000, and stated
If you bought the pod, you could earn up to £150 a month by renting it out to people who need some extra storage space.
It did not mention that the Store First investment scheme has collapsed and that the chance of actually receiving any rent is virtually nil. There’s a reason the investment is on the market for £2,000 despite supposedly offering a potential income of £1,800 a year (a 90% per year gross return). It doesn’t.
The article also did not mention that whoever is trying to sell their Store First pod for £2,000 on Rightmove probably paid a sum in the high five figures or more for it.
The MEN has now deleted this part of the article without any correction or acknowledgement of the change. Given that it has essentially admitted that this part of the article should not have been printed, I will not dwell on its error further. Although it is poor form to pretend it never existed, without issuing a correction or acknowledgement of the change.
And it does not resolve the issue of MEN’s misleading financial promotion of the hotel room investment.
The MEN has also refused to disclose what commission or other inducements they received in exchange for promoting the unregulated hotel room investment.
It has not disclosed whether the article was the MEN’s own work, or based on a press release issued by one of the investments promoted in the article. There is no “advertorial” declaration on the article.
Quite possibly the journalist who put this list together was only interested in the whimsy value of the various offerings.
But if you’re going to talk about unregulated high-risk investments as “making serious money” and “the perfect solution”, would a little due diligence hurt that much?