High-risk land investment leaves angry SA investors out of pocket

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Investigations found that the SJ Capital investment was extremely high risk, investors were not fully informed of the risks and many had seen no returns for more than a decade. Photo: iStock
Investigations found that the SJ Capital investment was extremely high risk, investors were not fully informed of the risks and many had seen no returns for more than a decade. Photo: iStock

BUSINESS


City Press has received complaints from several South African investors who had bought into UK property developments through South African-based property marketing company SJ Capital. Investigations found that the investment was extremely high risk, investors were not fully informed of the risks and many had seen no returns for more than a decade.

This is a reminder to any investors to do their due diligence before handing over their hard-earned cash. Don’t fall for the sales pitch.

Get in touch

If you or anyone close to you has had any contact or any financial dealings with SJ Capital, City Press would like to hear from you. 

Email Personal Finance editor Maya Fisher-French here.

In 2009, Marco bought a plot of land through SJ Capital as part of a development in Datchet in the UK for £27 000. Her understanding was that this property would be developed in three to five years and she stood to earn a good return. However, after 11 years, Marco says she just kept being told planning permission was “pending”.

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Anne bought into the same development through SJ Capital in 2012 for £25 000. After many years of asking questions, she is concerned that she may never see her money returned.Keith bought into a different development marketed by SJ Capital in New Addington, UK. He was recently told by the sales consultant that the property was unlikely to be developed.

“I have been told by the sales consultant that there are many angry investors,” says Keith.

We were not provided with details regarding the risks associated with a greenbelt. Had the inherent risks and processes associated with such a designation been explained to us prior to committing money, we would not have invested.
Investor Marco

SJ Capital’s marketing pitch is that it buys undeveloped land in the UK with a good chance of being developed due to a housing shortage there. The time frames and amount investors could make from the development are given. These plots are often marketed at shopping malls in South Africa, aimed at ordinary investors, yet very little attention is given to the significant risk that these properties may never receive planning permission.

City Press contacted the UK authorities regarding the Datchet land development, which falls under the Royal Borough of Windsor and Maidenhead (RBWM) Council, and discovered that not only is the land area in a greenbelt, but it is also a flood plain. While a greenbelt is mentioned in the marketing material, the flood plain is not.

“We were not provided with details regarding the risks associated with a greenbelt. Had the inherent risks and processes associated with such a designation been explained to us prior to committing money, we would not have invested,” says Marco.

“The consultant told us that the investment period would be around two to three years at very good returns as compared with bonds or normal commercial interest. What was sold to us was everything good about the investment, and nothing about the associated risks. It was only when three years came and went, then five, then seven, then 10 and we were being referred to the small print, that we began to suspect we were being duped.”

Anne confirms she was not informed about the greenbelt by the consultant and this was only disclosed in the agreement. However, she is adamant that “the flood level was never, ever mentioned, nor was the risk of that being an issue mentioned”.

Land banking schemes in the UK

Land banking schemes have been around in the UK for a number of years. This involves the sale of plots of land by companies that promise an increase in value because of “potential” planning permission.

However, the plot promoted by the company is usually protected, greenbelt land. In other words, it’s typically land set in a conservation area. For many of these plots, it’s unlikely that the councils will ever grant building permission, especially if they have been served ‘article 4 directions or applied a tree preservation order.

Article 4 directions prevents people from conducting activities that would normally be allowed without planning permission – this includes things such as putting up fences, walls and gates, or stationing caravans.

A tree preservation order is made by a local planning authority in the UK to protect trees and woodlands. It stops people from cutting trees down, uprooting them, or causing wilful damage or destruction.

“Investors need to be careful of such deals – they’re usually from companies that target overseas investors for a reason, knowing those investors have less sight of what greenbelt land actually means and what the planning conditions are,” says Dale Anderson, managing director of UK property investment company Fabrik Invest.

It’s difficult stopping the practice of land banking because the UK’s Financial Conduct Authority does not regulate the sale of land. In fact, it’s not illegal to sell small plots of land and if adverts are carefully worded, sellers can sometimes get away with the way they’re marketed.

Anderson says: “My advice would be to ensure that you’re investing with recommended UK property experts who deal with land conveyancing. Make sure that legal experts are members of the Solicitors’ Regulation Authority and that property companies are registered with the UK Property Ombudsman Redress Scheme.” – Angelique Ruzicka

The RBWM Council told City Press: “The site was proposed for allocation of the submission version of the borough local plan, but was not included as an allocation in the proposed changes version of the plan, mainly due to flooding concerns.

“The SJ Capital website suggests that the allocation has been secured, but this is incorrect. The borough local plan inspector from the planning inspectorate has not given any indication that the site should be reinstated into the plan,” the council wrote in its reply to queries.

In response to City Press and the council’s statement, Quinton Haddon, CEO of SJ Capital, maintains that “neither the greenbelt status nor its low-level flooding are issues sufficient to preventing development on this site”, adding that “any projections were based on timelines provided by Royal Borough of Windsor and Maidenhead in terms of the creation of their local plan and were made clear at the outset. These timelines are under the council’s control and are subject to delays that are beyond our or any landowner’s control.”

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Yet Marco says the involvement of the RBWM Council or potential issues were never explained to investors.

“We were not informed that the entire application process would be at the behest of the RBWM Council and, as such, risked being dragged over protracted periods.”

SJ Capital’s website assures that they take no responsibility for any outcomes, stating that “no representation, warranty, undertaking or guarantee of whatever nature is made or given concerning the accuracy and/or completeness of such opinions.

“Any investment is speculative and involves significant risks and, in making any investment decisions, you will rely solely on your own review and examination of the facts and the records relating to such investment.

“SJ Capital Group shall have no liability of whatever nature in respect of any claim, damages, loss or expense arising out of or in connection with the reliance by you, on the contents of this document.”

However, attorney Stephan van der Merwe of the Stellenbosch University Law Clinic says that under both common law and the Consumer Protection Act, a company remains responsible for the marketing of its products and that the common law principle of caveat emptor (“let the buyer beware”) is no longer applicable under the act.

Van der Merwe explains that, under common law, sellers will have acted fraudulently if they wilfully misrepresent the product to the buyer: “This fraudulent misrepresentation could include withholding vital information about the essence of the product – for example, failing to inform the buyer that it is highly unlikely that the product will be fit for the purpose for which it is advertised and sold. In this manner, the seller’s misinformation precludes the buyer from properly evaluating the risks associated with the purchase.

“Any person who suffers loss as a result of a fraudulent misrepresentation is entitled to claim damages in delict to compensate their loss.”

Van der Merwe says in this particular case, section 41(3)(c) of the Consumer Protection Act would be applicable. It states: “It is a false, misleading or deceptive representation to falsely state or imply, or fail to correct an apparent misapprehension on the part of a consumer to the effect that any land or other immovable property has characteristics that it does not have; may lawfully be used, or is capable of being used, for a purpose that is in fact unlawful or impracticable; or has or is proximate to any facilities, amenities or natural features that it does not have, or that are not available or proximate to it.”

Van der Merwe says a contravention of section 41 of the act would trigger the provisions of section 52, which would allow the court to make an order to restore money and compensate for losses.


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Maya Fisher-French 

Personal Finance Editor

+27 11 713 9001
personalfinance@citypress.co.za
www.citypress.co.za
69 Kingsway Rd, Auckland Park
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