12 May 2005

Insolvency experts have backed a Government crackdown on large buy-to-let property schemes in Manchester which have helped fund a multi-billion pound building boom in high-rise apartment blocks.

The newly named Department for Productivity, Energy and Industry hopes to soon close down at least six companies selling get-rich-quick schemes to residential property investors, some of them through expensive seminars aimed at creating property 'millionaires'.

Last week, the Financial Services Authority issued its first fine on a property-related matter to a regulated financial adviser. The adviser, Courtover, was fined £20,000 for approving a "misleading property promotion" for the issue of unlisted shares in a company selling overseas residences, promising returns of 20 per cent.

The DPEI is sceptical about the claims made by many property investment companies and currently has the sector under heightened scrutiny and says it will close companies down if there is evidence of wrongdoing.

Edward Cook, licensed insolvency practitioner at our Manchester office commented:

"Many investors in property syndicates have borrowed heavily to buy apartments that aren't even built yet. Some have used credit cards to pay deposits. As prices of new flats fall and property values in general stagnate many investors will feel the pinch. There are plenty of credible companies in the industry but it's important to undertake thorough research before investing. Anything the Government is doing to help clamp down on risky deals for creditors and borrowers is to be welcomed."

For more information on our Taxation Services visit our Services area