Katar Investments / Chinese Business Hub – unregulated investment in Dubai workspace units paying 10-12% per annum

Katar Investments is offering unregulated investment in rented workspace units in the Chinese Business Hub complex in Dubai South.

Investors can invest multiples of $30,000 to buy workspace units from Chinese Business Hub, which then undertakes to pay investors up to 12% per annum “assured returns” as follows:

• invest $30,000 to buy 1 unit and receive “assured returns” of 10% per annum
• invest $60,000 to buy 2 units and receive “assured returns” of 10.5% per annum
• invest $90,000 to buy 3 units and receive “assured returns” of 11% per annum
• invest $120,000 to buy 4 units and receive “assured returns” of 11.5% per annum
• invest $150,000 to buy 5 units and receive “assured returns” of 12% per annum

Chinese Business Hub undertakes to buy the investor’s unit back after 10 years for 120% of the purchase price. It also says that after three years, a “trading platform” will be established to enable investors to sell their workspace unit.

Who are Katar Investments?

Katar Investments’ website lists the directors as Sam Tarling (founding partner and sales director), Jenny Gallgher (founding partner and marketing manager) and Joe Ferreira (director).

Companies House shows the controlling owner of Katar Investments Limited is Geoff Siden (who owns 54% of the company). Geoff Siden was previously the owner of Worldwide Leisure Group, a timeshare sales company, but online reports suggest he is retired. Sam Tarling, Jenny Gallagher and Joe Ferreira own the remaining shares.

Katar Investments Limited’s latest accounts show net assets of £15,875.

Who are Chinese Business Hub?

According to the literature the managing director is Elva Tang, although I could find no mention of an Elva Tang on chinesebusinesshub.com’s ‘About’ page.

The chinesebusinesshub.com website was registered in April 2016 by Tom Farmer of Crowngate International.

How safe is the investment?

These are unregulated investments in individual units of a rented workspace facility, and you risk losing up to 100% of your money if Chinese Business Hub stops making payments and a buyer cannot be found for your units.

This is a “pod” investment, where the owner of a property which others pay to occupy (such as a hotel, care room, self storage facility or, in this case, a rented workspace office) divides the property into units (or “pods”) and sells them to investors at a fixed price.

The investment should not be confused with a “buy to let” investment. With buy-to-let, the investor has full control over who they rent their property to. A buy-to-let investor may employ letting agents to do the job for them, but they can hire and fire the letting agent at will. They may also have to pay ground rent to the freeholder of a block of flats, but the freeholder does not have the right to stop the leaseholder letting out their flat.

In the case of this investment, Chinese Business Hub retains control over who uses the workspace units. Individual investors have no ability to fire Chinese Business Hub if they fail to keep their unit occupied.

The controller of the pod investment typically offers investors a fixed rate of return for a given period – in this case, 10-12% each year for ten years. Responsibility for renting out the units thus passes back to the controller, who must find enough renters to generate sufficient yield to pay investors their 10-12% each year.

The yield in itself does not make the investment attractive, because anyone can take $30,000 off someone and give them $3,000 a year back for ten years. The success of the investment depends on how much you get back at the end, once the fixed payments expire. To address this, “pod” investments typically promise to buy back the investor’s unit at a fixed rate of return – in this case, 120% after ten years.

These schemes are extremely high risk because the promise to pay investors a fixed return of 10-12% per annum is only as good as the company backing it. If The Chinese Business Hub fails to make sufficient income from its rental units to pay a fixed return of 10-12% per annum, it may default on payments of income to investors.

Likewise, the promise to buy back investors’ units at 120% of the purchase price is also dependent on Chinese Business Hub having sufficient liquid funds to do so. If Chinese Business Hub is unable or unwilling to buy back the units, investors will be relying on selling to third parties on the secondary market if they want to get their money out.

In the extreme, investors in pod-type investments have been known to lose all their money (e.g. Store First) when:

• the investment firm stopped paying the promised fixed returns and refused to buy the units back
• it became clear that there was no realistic prospect of the investor’s individual unit being occupied by a renter and generating any yield
• and as the units generated no yield, this made them effectively worthless on the secondary market.

We are not implying that the same will happen to Chinese Business Hub’s units, but this example illustrates the risk that is inherent in investing in individual units within a larger investment property. Investors should not assume that as a workspace unit is a physical property, it must have some value. The value of a room in an office block to which someone else controls access depends entirely on what yield can be expected.

If Chinese Business Hub becomes unable to meet the payments of 10-12% per annum, investors would then have to rely on Chinese Business Hub keeping their workspace occupied and generating sufficient rental income from it.

This means that investors must satisfy themselves that Chinese Business Hub will not fill up its own units before it fills up those belonging to investors receiving rental income.

Market price

Investors purchase their workspace rental units for a fixed price of $30,000.

There is no recognised secondary market for individual workspace rental units and the figure of $30,000 has presumably been determined by a valuer working for Chinese Business Hub.

Investors should undertake their own due diligence on this purchase price to ensure it is fair. Just as when buying a house, you would hire your own valuer and not just accept the valuation of the estate agent (who works for the seller).

It is highly unlikely that anyone would buy a second-hand workspace unit in the Chinese Business Hub, when they could get one direct from Chinese Business Hub with a guaranteed 10-12% yield and a 120% buyback promise.

This means that for as long as Chinese Business Hub is making this offer, investors wishing to exit their investment will be reliant on Chinese Business Hub having sufficient funds to exercise the buyback option.

“Tax free” investment?

The brochure states “There are no income tax thresholds existent in the UAE, so all returns are fully tax-free”. Given that this brochure is being offered to non-UAE investors, this is a rather incautious statement. The investment may well be free of tax in the UAE, but overseas investors may be subject to income tax, capital gains tax or other taxes in their own country.

Should I invest in Chinese Business Hub ?

This blog does not give financial advice. The following are statements of publicly available facts or widely accepted investment principles, not a personalised recommendation. Investors should consult a regulated independent financial adviser if they are in any doubt.

As with any unregulated investment, this investment is only suitable for sophisticated and/or high net worth investors who have a substantial existing portfolio and are prepared to risk 100% loss of their money.

Any investment offering returns of 10-12% per annum should be considered very high risk. As an individual security with a risk of total and permanent loss, The Chinese Business Hub’s workspace units are higher risk than a mainstream stockmarket fund.

Before investing investors should ask themselves:

• How would I feel if Chinese Business Hub became unable to pay fixed returns or to buy the units back, the workspace unit generated no rental income, there was no secondary market for my workspace unit and I lost up to 100% of my money?
• Do I have a sufficiently large and well-diversified portfolio that the loss of 100% of my investment in Chinese Business Hub would not damage me financially?

If you are looking for a “secure” or “assured” investment, you should not invest in unregulated investments with a risk of 100% capital loss.