According to today’s Property Guru’s news article, 400 Singapore investors are suing Ecohouse for investment losses of up to $70 million. Apparently, the company had an office in Suntec Tower and managed to attract many first time retail investors hoping to make money from overseas property investments. Investors were sold investment schemes that promised to deliver “20% in 12-months on its S$46,000 social housing property investments”.
To put things into perspective, many of these Singapore investors are not your typical mom-and-pop types of investors who are uneducated and ignorant. Most of the victims are middle-class people with high incomes seeking to enhance their wealth through schemes that promise high returns within a short time frame. Usually the scheme involves pooling of investors funds and the money is typically managed solely by the operator. The first principle that investors should always bear in mind is that if something is too good to be true, it is! Retail investors should first of all check whether these schemes are regulated, instead of just focusing on the rate of returns.
Ecohouse managed to sell more than 1000 of their investment schemes in Singapore and other South East Asian countries in 2012 and 2013. That was the period when the property market was in blistering red hot form in Singapore and also coincided with the slew of cooling measures implemented by the government. Due to the unfavorable investment climate for real estates, Singapore investors hoping to make money from overseas real estate investments were lured by schemes that promised 15 -25% returns within a year. In fact, last year one of my friends had an interest in investing in Japan property market but I warned him that his lack of knowledge in the Japan market and the language barrier would pose a huge risk. I am not sure if he was fully convinced by my pointers but his interest indicated many first time property investors are vulnerable to the pitfalls of overseas property investments.
Many investors interested in overseas property investments don’t care how the returns are generated and whether the schemes are regulated. Just like my friend, they don’t bother to look before they leap. When I queried the investment merits of investing in Japanese properties, my friend highlighted that Japanese are known for their integrity and honesty, so how can the investments go sour? I almost fell off the chair when I saw his text message. The number one danger in investing is not knowing what you don’t know. And the lesson can be really painful if you lose huge sum of money from failed investments. Some people, after losing their entire fortunes, could not take the blow and subsequently lost their mind. Some even commit suicide.
Always bear in mind to take care of the downside risks and the upside risks would take care of itself. In Singapore, securities and collective investment schemes are regulated. The regulatory regime safeguards the interests of retail investors and the regulations require accurate disclosure and risks of these products. Also, according to Moneysense, “financial institutions are expected to have a process to review and resolve complaints. In instances where the matter cannot be resolved, retail consumers may approach the Financial Industry Dispute Resolution Centre for mediation and adjudication. These safeguards do not apply to consumers that invest in unregulated investment products or schemes”.
So it is true that all overseas property investments are doomed to fail? To be fair, this is not true. Based on a few successful stories shared by my colleagues, they made money from overseas property investments after living in the foreign countries for a few years. Some of them had kids studying there and so they accompanied them to live there for a few years. Some of them were posted by their companies to work there for a number of years. Their stays there allowed them to be familiar with the local regulatory regimes and the market dynamics – location (near good school), living density and management.
There are many free online literature out there on how to invest in overseas properties. Just do your homework before you jump in with your hard-earned money. There are no free lunch in this world!
SG Wealth Builder