Oz Scams make headlines in the UK

Dear All

I thought you’d be interested to know that Aussie property scams are making headlines in the papers in the UK. Below is an article from today’s Guardian newspaper.

Cheers

Bec

Why prices have become wizened in Oz
The long property boom in Australia is at an end and the blame is being heaped on one man’s shoulders: Henry Kaye, the man who promised to make multi-millionaires of investors in just three years. Patrick Collinson reports
Patrick Collinson
Saturday December 20, 2003
The Guardian

Property prices in the once-booming Australian market are stagnating and critics are blaming the collapse of an extraordinary “millionaire” investment seminar business – with disturbing implications for the UK.

The name Henry Kaye is now familiar to almost everyone in Australia. Mr Kaye built a business empire of roughly 130 companies on charisma, showmanship and the promise that everyone can become a property millionaire.

More than 100,000 Australians were lured by newspaper ads to introductory seminars which promised you could “retire a multi-millionaire in less than three years.” Mr Kaye claimed he could teach the unsophisticated how to “buy property at 20% below the market every time” and “how to borrow… with no personal liability and no personal risk.”

Today Mr Kaye’s empire is in ruins. Many of his customers, persuaded to pay for ever more expensive seminars and buy “discounted” properties, have lost much of their savings.
Losses at his failed business empire have mounted to more than A$80m (£34m) and the Australian Securities and Investments Commission has asked the Federal Court to confiscate Mr Kaye’s passport over fears he may seek refuge overseas.
Meanwhile, the off-plan and buy-to-let properties that his victims invested in are now being dumped, sparking widespread price falls. The Australian newspaper reported last week that prices in Sydney and Melbourne – Mr Kaye’s base – have already fallen by 12%-15% and that the “collapse of property spruiker [salesman] Henry Kaye could accelerate the downturn, as investors with more than one property dump apartments on an already soft market.”

Could it happen in Britain? The parallels between Britain and Australia are ominous: Like Britain, Australia has experienced a raging house price boom since 1997. Like Britain, Australia has also experienced a huge surge in “buy to let” property investing, with 40% of purchases down under made by investors. The flood of investment properties has sent rents tumbling, such that rental yields have fallen to only 1% in Sydney.

But what marks out the Australian experience is the extraordinary impact of property investment seminars. These advertised extensively across Australian media, capturing the attention of wannabe speculators in what has already gone down in history as the country’s most frenetic ever property boom.

It is a trend that has now hit Britain. In recent months national and regional British newspapers have been deluged with “millionaire” adverts promising an easy path to property riches.
The similarity between the advertising and promotional material used in Australia is striking.

Warren Borsje was raised in Australia and today (according to his website) has homes in Melbourne, Monte Carlo and London as well as investment properties, share portfolios and businesses in Australia, New Zealand and Europe.
At London seminars this year he has attracted attendances of 500 or more, where he has encouraged people to buy rental properties. In total, around 20,000-30,000 have attended his free seminars, all in London, although many fewer have paid for the full £1,980 weekend seminar.
But while there are similarities between the marketing methods used by Mr Kaye and Mr Borsje, the methods they use are very different. Unlike Mr Borsje, Mr Kaye encouraged attendees to buy his “discounted” properties, with the aid of finance facilities and mortgages. In contrast, the Borsje courses are purely educational, according to a spokeswoman, who added that the company has now switched to distance learning and no longer runs hotel-based seminars. She said that Mr Borsje (who was out of the country when Jobs & Money tried to contact him) has no connections with Mr Kaye.

But elsewhere the property investment seminar business continues to expand in the UK, with new ads and new operators appearing weekly. What’s more, the popularity of the BBC’s Million Pound Property Experiment series, presented by Justin Ryan and Colin Mc Callister, has prompted a new wave of adverts. All you have to do is turn up at a free seminar. But usually the only person certain to become a millionaire is the presenter of the seminars. Attendees are frequently subjected to a hard sell to cough up thousands for a series of “in-depth” courses.

In Mr Kaye’s seminars, thousands of Australians paid A$15,000-A$50,000 each (£6,000-£21,000) to attend his courses. Mr Kaye picked up staggering sums for these seminars – according to documents issued by Mr Kaye when he was trying to attract investors to buy into his companies, he made A$67m (£28m) in seminar fees alone in his last financial year.

In Britain, course fees for property investment seminars are lower, but with around 100-200 people typically attending a weekend course, it’s possible for the seminar presenter to pick up £500,000.

In Australia, what marked out Mr Kaye was how he is alleged to have made money not just from the seminars but also from behind-the-scenes deals with property developers.

According to Alan Kohler, finance presenter on ABC News, Australia’s main network television channel, Mr Kaye was a charismatic 30-something of Russian-Australian parentage who promised to help ordinary people to get rich quickly. But the ordinary punters were unaware of the smoke-and-mirrors Mr Kaye used to offer “discounts” on property.

According to Mr Kohler, it worked like this. Mr Kaye would agree with a developer to provide buyers for units at a certain price – say A$300,000 each. Rent on a unit worth that much would normally be around A$250 a week, but Mr Kaye provides a rental guarantee at A$350 a week for five years, which supports a sworn valuation at A$440,000.

He then appears at a seminar offering to sell new units at a 10% discount. Gross profit per unit for Mr Kaye is A$100,000. The rental guarantee costs him A$25,000 (A$350 a week minus A$250 over five years), so net profit is A$75,000 per unit.
However, schemes like this only work until the naïve buyers try to sell on their properties – and find that the initial “discount” was in fact an over-valuation.

Mr Kaye’s customers are now hoping to launch what will be one of the biggest class action lawsuits seen in Australian history. Australia’s corporate regulator has already taken Mr Kaye to the Australian Federal Court to seek the return of millions of dollars to investors.

The Australian Securities and Investments Commission has also lodged an application in the court seeking a receiver to take charge of Mr Kaye’s assets and those of one of his companies, Property Corporate Services. Two of Mr Kaye’s other companies, National Investment Institute and Empower Group were put in receivership late last month.

One of Australia’s most vigorous consumer advocates, Neil Jenman spoke to Jobs & Money specifically about the Australian experience. He said: “It is easy to think that people attracted to get-rich-quackers were greedy or gullible. This overlooks the fact that to charge thousands based on deceitful claims is fraud.”

In the UK, property investment seminars are legal, and because they do not constitute advice under the Financial Services Act, do not come under the supervision of the Financial Services Authority.

Mr Jenman is campaigning for a tightening of Australian rules, and says UK regulators should take a close look at the experience down under to prevent something similar happening closer to home.

Guardian Unlimited © Guardian Newspapers Limited 2003