Dec 31, 2009

The Risks of Unregulated Investments in Singapore

In the ST Forum today, one Gabriel Chua writes as follows:


    "I would like the authorities to explain the regulatory framework governing all forms of investments where money is collected from Singaporeans and invested overseas.

    We have solid regulations governing finance firms, financial advisers, securities, futures, fund management and so on.

    Yet we have heard of how many Singaporeans have lost money investing in overseas properties sold in Singapore.

    We have strong regulations governing financial advisers who want to sell even $1,000 of unit trust investments. Do we have the same for companies set up here to collect money from Singaporeans for investments in their own country?"
Gabriel has correctly identified a gap in Singapore's laws.

In general, you can be quite confident that in Singapore, your insurance agent or financial adviser holds the proper licence to do his job. Also, banks and insurance companies all have to get a MAS licence, before they can do business here.

And if you buy land or property in Singapore, government bodies such as the HDB, the URA, the BCA and the Singapore Land Authority all do their part to ensure that the system is reasonably reliable.

But some other types of investments fly almost completely under the regulatory radar.

I have personally come across two examples. The first is fine wines. The second is foreign land. I'll just discuss the latter.

I once received a call from a telemarketer. She invited my wife and I to high tea at a 5-star hotel. She also promised that in return for our attendance, we would be given $100 worth of shopping vouchers (I think it was Tangs or Metro) .

The requirement? We had to sit through a 60-minute presentation. No obligation to buy anything. But we had to sit and listen for a full hour.

My wife and I attended. The conference hall was crowded, filled with many Singaporeans like ourselves. As we enjoyed our high tea, a lady came to our table and did her presentation. She carried a laptop, ran a Powerpoint slide show and discussed various brochures, maps and legal documents with us.

It was all about investing in a certain big, empty piece of land in the United Kingdom.

You didn't have to be super rich to participate either. The entry level was not high. Here's how the investment scheme worked.

The land in question was neatly divided into thousands of parcels (think of a grid of many, many small squares, superimposed on a big map). You could choose the specific parcels of land you wanted to buy.

Suppose the average price of one parcel was $5,000. If you wanted to invest just $5,000, you would buy just one parcel of land. If you wanted to invest $10,000, you would buy two parcels. And if you were very rich, you could plonk down. say, $5 million and buy 1,000 parcels of the land.

You could buy as many or as few parcels as you wanted.

I was told that the company was marketing this scheme to people in Singapore, Malaysia and Taiwan. The whole idea of the exercise was to round up enough Asians to collectively pool their money and buy the entire piece of land. One fine day (and it could be many years later) the company would help them to sell the land for a good price, and each investor would then get his or her share of the profit.

I didn't invest any of my money.

I did ask lots of questions. My wife and I are both lawyers, and we found it interesting trying to work out the legal structure. The sales lady couldn't answer some of our questions, but she did get her boss to come and explain. He was a European businessman (a Finn, I believe), sophisticated and knowledgeable, and he gave reasonably good, clear answers.

Anyway, in the end, while we understood the legal structure, we felt that we didn't understand the market risks well enough. (I personally know nothing about land anywhere except in Singapore).

So we finished our coffee and snacks, and said, "Thank you, we will not be investing in this. Now can we have our free shopping vouchers?". We duly collected our free $100 shopping vouchers and left.

I should add that at this event, there was no hard sell. Right from the start, they had said that they would not use any unscrupulous tactics to pressure us to buy, and this was true - there were no unscrupulous tactics.

Nevertheless, the incongruity is undeniable.

You can't sell a $5,000 unit trust investment to an uneducated grandmother in Singapore, unless you hold the necessary licence and comply with all the MAS rules and regulations. The licence, and the rules and regulations, are to help safeguard the grandmother's interests.

But you can sell the same grandmother a $5,000 parcel of land, situated in a country far, far away, under a complex collective land ownership scheme. You don't need any licence. Nor does the Singapore government seem to know or care whether the land really exists; or what you tell or do not tell the grandmother; or what documents you ask her to sign.

Some potential for a disaster there. Right?

29 comments:

federick said...

land banking!!!

Anonymous said...

the problemw with their selling tactics is... how to ensure that there will be returns??

Buying a piece of land waiting for it to appreciate, when the US and Europe property is down, does not make sense to me.

diggo

Anonymous said...

I would say it is the risk of being naive.

If one is naive, there is risk in everything, not just investments.

So don't be naive.

hugewhaleshark said...

I guess the Singapore government works on the basis of avoidance of embarrassment. So long as landbanking stays out of mainstream investing, and more importantly mainstream news, with nothing terrible happening for people to complain about, they will probably be left alone to do their thing.

Also, the government is quite adept at regulating financial investments. Foreign fund managers cannot anyhow sell their products here unless they have approval. But for property investments, they are more lax. In this case they probably think that landbanking is a property investment. But this is not entirely true because of the structure of the investment, which gives rise to more risks...

Anonymous said...

I think if the govt want to regulate landbanking, they will also have to regulate

1. fine wine investment
2. ostrich farming investment
3. fine art investment
4. selling of hair gain product for balding men
5. etc, etc

A thousand and one things to regulate.

Or how to regulate to protect all kinds of naive, gullible and stupid people in general?

Chris said...

You were right to be cautious. These sales are probably a scam.

The land exists, and it can be sold off. However, it is unused land classified as agricultural land. Any appreciation in the value of the land, or perhaps better to say, any significant appreciation in the value of the land is dependent on gaining planning permission for other uses (such as housing or industrial uses). This is rarely if ever given.

There have been exposés of these sales here in the UK. Here is one link to a BBC consumer program's exposé: http://www.bbc.co.uk/radio4/youandyours/items/01/2009_33_thu.shtml

Anonymous said...

I don't think you can blame the gov on this. Investment is a personal responsibility. Like the saying goes, "don't invest in anything you don't understand". Do you want to gov to nanny us on how to invest our money still? (As if they are not already nanny us how we use our CPF money)

I think Singaporeans need to smarten up themselves and be responsible for their own money and not let others (gov or non-gov) handle for them. Retirement money or not.

Another saying goes, "fool and his money are soon parted".

LuckySingaporean said...

Mr. Wang,

3 landbanking companies, Profitable Plots, UK Land and Edgewood have been raided by Malaysia authorities.

http://www.malaysianbar.org.my/lega
l/general_news/companies_commission
_raids_three_companies_over_illegal
_land_investments.html

4 years ago, telemarketter from Profitable Plots called me and I asked him about Walton. He sent me a collection of negative articles on Walton. How they paid 3 times cheap farmland in Canada then mark it up another 3 times to sell it to Asian investors etc. The reason why these companies are here is $5000 for a plot looks dirt cheap to Asians in HK & Singapore but to someone in Calgary or Alberta, they wouldn't pay $400 for the same plot.

Investors should ask themselves when these companies advertise returns of 15-20%...why do they offer to lend you money at 8% to invest in these plots of land. It is down right silly.

We may laugh at Malaysians for losing those jet engines and other negative demonstrations of competence but they did stop those toxic minibonds from entering their country, recovered most of the money from Swiss-cash scam and yes, they are ahead in shutting down these landbanking scams.

BTW, why would a person who makes at least $320K per annum (deduced from your SRS post) sit through 1 hr of hardsell to get $100 worth of shopping vouchers?...

HAPPY NEW YEAR...Mr. Wang.

Lucky Tan. (singaporemind.blogspot.com)

Mr Wang Says So said...

"BTW, why would a person who makes at least $320K per annum (deduced from your SRS post) sit through 1 hr of hardsell to get $100 worth of shopping vouchers?..."

It was actually much longer than 1 hour. Because my wife and I asked so many questions. And also because we brought our two kids along for the free high tea.

Free high tea for 4 people, and $100 of shopping vouchers. Plus an educational session on how landbanking works.

Not bad, what. :D

Anonymous said...

I sensed that Mr Wang, despite his high income is also very careful with money, treasuring even 10s or 100s of dollars.

Such people will grow their money very fast and be very rich.

And this is one good way and strategy to get rich. Have a high paying job (or do a good business) and treasure even small amounts of money.

Even though I do not earn half as much as Mr Wang, I also treasure money and have become quite rich and comfortable enough to even retire now.

Forget about getting rich through all kinds of funny investments, if you don't have good income in the first place.

Anonymous said...

I sensed that Mr Wang, despite his high income is also very careful with money, treasuring even 10s or 100s of dollars.

Such people will grow their money very fast and be very rich.

And this is one good way and strategy to get rich. Have a high paying job (or do a good business) and treasure even small amounts of money.

Even though I do not earn half as much as Mr Wang, I also treasure money and have become quite rich and comfortable enough to even retire now.

Forget about getting rich through all kinds of funny investments, if you don't have good income in the first place.

choozm said...

Time sharing is another one.

Anonymous said...

Time Sharing is the worst of the lot of "investments".

Anonymous said...

http://www.lanerealtycorp.com/

Farmland in Saskatchewan costs
only C$50,000 for 160 acres(64 hectares). i.e. 640,000m2

Only C$0.08 per sq. m.

Anonymous said...

totally agree with Mr Wang. The govt should just regulate the entire investment sphere evenly, and make all these firms and sales people responsible for truthful marketing tactics.

My beef with these non-regulated investment schemes are selective or inflated historical returns.

Anonymous said...

Why not do it in their own backyard ?

There are always people closer to home including respectable funds(we are talking about UK & Europe) looking for good returns and they have all the right professionals who are more intimate with the conditions there to advise and consult.

Mr Wang Says So said...

"Why not do it in their own backyard?"

I did ask that question.

The answer given was that if a UK resident buys the land and then later sells it, capital gains tax will apply, making your profit much smaller.

Whereas the capital gains tax would not apply to a non-UK resident.

There is no capital gains tax in Singapore, nor in Malaysia (for real estate), so conceivably the scheme works better for S'poreans / Malaysians, than UK residents.

Onlooker said...

If the offer is so good:-

might as well buy a plot of land on the moon.....

Where squatting laws will not be considered.no?

Chris said...

Also, UK residents are more likely to have heard of this landbank scam and avoid it, while people living in Malaysia and Singapore have not, thus making them better patsies than Brits.

Mr Wang Says So said...

Also true.

Really the biggest turn-off for me is that I would be signing an agreement with an unknown company, in fact, a company set up for no other purpose or business than to hold and administer this piece of land in the UK.

In Year 3, the company could quietly close down and be wound-up, and I might not even know it until Year 4 ... or 5 ... or 6.

Mr Wang Says So said...

"If the offer is so good:-"

Whether the offer is good, I do not know.

That is the problem. I wouldn't know much about land in the UK.

Anonymous said...

Mr Wang 7:58 am

Brilliant and earth shaking statement! Need to be put on a plaque!

Any naive person would have instantly come to his senses after reading it. And thereby avoid being scammed.

Anonymous said...

Now you ask why there is such huge land price inflation world over?

Anyway, the same question that many have been asking. If PRs can buy HDBs at no age limitation, why must single Singaporeans be allowed to buy only if they are past 30?

Singapore is never always the best or neatest in legal systems. We just think we are.

ACS said...

There were investment in tea leaves too...

Robert L said...

Excuse me...

Don't you guys object to the idea that our govt should spend our taxpayers' money to protect some gullible fools from throwing their money overseas?

Because that's what the ST Forum post amounts to. If the govt puts up civil servants to regulate the foreign land sales, it means public money is spent for the benefit of those few who have the money to spare to invest in foreign properties. I find this concept nothing but revolting.

Anonymous said...

///Don't you guys object to the idea that our govt should spend our taxpayers' money to protect some gullible fools from throwing their money overseas?///

What is wrong from with this - protecting the money of possibly your own citizens (also taxpayers) from being lost to a foreign land.

If not, then at least free up the public media for programs on this kind of investments to be freely discussed (educational lessons) so that the wider public will be wary and may not be so gullible.

The knowledge gap must be eliminated or made as small as possible between the seller and the buyer as the former may be privy to important stuff the latter may not missing.

daniel said...
This comment has been removed by a blog administrator.
Mike said...

One of the big issues with Land is the extremely low value of the land without planning permission. One very large plot currently being offerd in the UK is marked up by 20 times. So if you need to liquidate a 12000 dollar plot you get $600 assuming you can get a buyer. Also this company does not have offices in the UK having been shut down there a few years ago for doing exactly what they are now doing in Asia. These are scams moving round the world.

Anonymous said...

Having a licence is not enough. All finanical advisers should get themselves CPA & CFA certified. (I know a number of them are bound to fail these exams & this is the reason why I made this suggestion so as to reduce the number of con-men & women in the financial industry.)