The Cape High Court gave interested parties until July 27 to tell it why it should not grant an application by Elma Taylor, aged 69 of Franskraal, to place City Capital into liquidation - a move not expected to be opposed by the company.
City Capital, which has been the subject of a Financial Services Board investigation started early 2009. The FSB finally suspended it's license last month.
It is estimated that R500m has been invested by private investors. Sadly, the vast majority are retired individuals that were approached by "brokers". It is unclear if brokers representing City Capital were licensed by the FAIS Act. City Capital offered above average commissions to brokers for investing client funds into the City Capital property syndication. The company now now faces collapse and it seems clear that these investors are highly unlikely to see their money again.
Jurie Wessels, a director of City Capital, blames the collapse on the acquisition of a company called Dividend Investments.
Realnet has been investigating property syndication and issued stern warnings about the investment risks of investing in property syndication companies such as City Capital.
There are many property syndication companies offering good returns, some even offering guarantees. Surprising at first every thing seems legitimate with these companies including having FSB licenses. But don't be fooled by that all financial companies offering investments to the public are meant to be regulated by the FSB. The majority of these schemes have FSB Licenses and this is played upon in their marketing efforts offering a false sense of security.
Please think before you invest in a scheme, think about it if the worlds best institutions are unable to match these unrealistic returns with all the resources they have on hand. How come some up and coming hot shot syndication company be able too?
Before making an investment make sure you get proper financial advice!
If it sounds to good to be true it most probably is!
Here is a report from Realnet:
In March, for example, Realestateweb - part of the listed Moneyweb group (JSE: MNY) - told how third-largest property syndicator Dividend Investments needed a rescue package and that its income-generating products were in jeopardy.
The products sold promised an unrealistic income yield, which escalates at 10% a year, on average. The rental income of the underlying property has been unable to meet this promise, creating a cash shortfall. For a time, City Capital subsidised income payments to investors through loans to the property companies at the prime interest rate.
The original promoters of Dividend Investments have washed their hands of the company. They are believed to be involved in diamond mining in Angola.
The trouble that's arisen raises questions about the competence and motives of brokers who sold the products of Dividend Investments. If the products were unsustainable, and the promises unrealistic, this is something the brokers should have picked up.
City Capital was until earlier this year subsidising the income payments to Dividend investors. It has done this in the form of loans, granted to the property companies at the prime interest rate. These loans totalled about R30m, and covered just over a year's worth of subsidies.
Capital Investments MD, Bertus van Zyl told Moneyweb investigative journalist Julius Cobbett earlier this year that the subsidies were stopped at the end of January in the hope of persuading investors in the Dividend Investments syndications that a rescue solution was necessary. As an alternative to liquidation, he had proposed that the syndication companies be rolled into a new property fund.
The proposed conversion would have required approval of 100% of investors, something Van Zyl conceded was unlikely as it was difficult to explain to investors that the conversion is in the best interests of shareholders.
Independent investigative journalist Deon Basson is most closely associated with public warnings about the risks associated with property syndications. He turned his concerns about the investment risks involving property syndication Sharemax into a personal crusade. Basson passed away last year amid a stressful battle with Sharemax.
Others that have issued warnings include Brent Wilson, editor of ITInews (read How to get your cash from Sharemax), and personal finance book author and adviser Magnus Heystek (read Beware of property syndicates - Heystek).
For a list of more articles on property syndications, search the Realestateweb site.
Property syndication schemes: are they really that risky? Share your views below this article.
