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Should property clubs be regulated by the FSA?

Last week the Financial Services Authority revealed proposals to tighten rules surrounding property clubs.

The proposals would mean clubs which do not exercise day-to-day control over the management of properties would fall under the FSA’s remit. They would be classed as collective investment schemes and therefore be regulated by the FSA.

FSA spokesman Robin Gordon-Walker says: “The concerns are about unsophisticated landlords getting involved. The consultation is not about extending the FSA’s regulatory reach. It is a guide on what might be need to be regulated.

“If the people in a scheme are directly managing the property, such as taking part in weekly meetings, they’re more like a property managers. If it is a collective investment scheme it needs to be properly authorised and regulated.”

So, Mortgage Strategy asks: Should property clubs be regulated by the FSA?

Stuart Law, Assetz – Sensible regulation of property investment clubs such as risk warnings on documentation and standardisation of examples showing potential returns could be a positive thing. But if normal FSA regulations were applied, limiting the ability of property investment clubs to explain the maths behind investments with gearing for example, this would greatly hamper the investment industry and would not benefit the consumer.

Paul Smith, Spicerhaart – It is widely known that inexperienced investors have lost out to unfair trading by some property investment clubs. One example is potential buyers being duped into buying properties that have been overvalued. If the clubs are regulated by the FSA it should help ensure not only that valuations on properties are both transparent and fair but also that customers are protected from suffering a loss as a result of speculative investment.

Jon Round, Lending Solutions – It’s important that anyone investing in property should fully understand the risks and rewards. If certain property investment schemes become subject to investment-based regulation, this would provide some added protection. However, the scope would need to be carefully defined as I would not wish to see an unnecessary regulatory burden being extended to all joint property investments such as a group of friends buying a house together.

James Rodea, Cluttons – Property clubs should be governed by the FSA. I’ve been to these exhibitions and firms are not obliged to point out negative aspects of a development such as a window facing a brick wall. The investor won’t know this, especially when buying off-plan. They can be taken in by discounts on block deals and then find the property is not going to rent. People need to be aware of what can happen.

Kevin Duffy, Hamptons International Mortgages – The answer is a resounding yes. Our trade bodies should get stuck into the FSA on this not least because the investors generally most at risk are buy-to-let virgins and those with only a fledgling understanding of the genuine risks involved.

James Cotton, London & Country – This is part of the bigger issue of whether buy-to-let mortgages should be regulated. Buy-to-lets are often part and parcel of these clubs and while they remain unregulated it’s hard to see what elements of clubs’ activities could come under the FSA’s watch.

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