"Grave concerns" have been raised over the lack of advice investors in Liverpool's "high-risk" fractional sales schemes were given, in an unprecedented new council report.
The study into the stalled developments that litter the city has called for more transparency into the process of how it sells off its land and buildings - and increased clarity over the relationship between developers and the local authority.
The findings of Liverpool Council's Fractional Investment Scrutiny Panel have been released .
The scrutiny panel's list of 11 recommendations to improve regulation of these schemes will now be reviewed by the council's Regeneration Select Committee.
Over the past few years, the Liverpool Echo and BusinessLive have on various failed city schemes where investors, many from the Far East, have feared losing their life savings due to failed developments.
And the report comes after a property expert said in December that .
What was in the report?
The panel was set up to examine the fractional investment development model, and the report was written following a series of interviews with experts in the planning, financial, legal and construction industry.
We've been covering the committee since it was formed in 2018:
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In the report released on Tuesday, findings included that there was "no known advice" to the public about the "high-risk" involved in fractional investment - adding that it was "disturbed by the lack of coherent advice". That was a "serious gap and a grave concern, not only in Liverpool but nationally".
What are fractional sales?
Fractional selling, where a building project is funded by selling flats off-plan in advance before it is built, has become a common way of developing in Liverpool.
Investors are promised "yields" in return, including interest on their investments and rental income, once the buildings are finished. Many developments have been successfully built that way, but some high-profile schemes in cities like Liverpool have stalled.
A report last year by leading property agency City Residential said investors in Liverpool were now becoming far more risk averse to this method of selling - with the model "starting to struggle across the board".
A new body was set up by Liverpool Council back in 2018 in a bid to improve regulation of these schemes. Last year, it reported over a lack of fractional sales advice.
Its next meeting is scheduled for Wednesday evening.
Findings also included that the ability to hold developers to account was "highly unsatisfactory", and that with investors often not paid promised financial returns, they may have then "cut corners" on rental yields. That meant the tenant "reaped the disadvantages".
The report also revealed that developers had used the city council’s logo without consent for promotional purposes - but that planning permission "must not be taken as the council's approval of the scheme".
The panel heard evidence from a developer who said while there were "good established" operators in Liverpool, there were also "opportunist entrants who lacked experience".
That developer also told the panel that the fractional sales model could often result in a "price war" for flat rentals, as investors looked to obtain a return if a guarantee was not honoured, which meant in practice "a race to the bottom".
The developer added that "too frequently" investors were directed to use a "tame lawyer" who did not raise challenges, adding that the number of planning permissions granted was a "barrier to corporate investors" who feared an oversupply and a "subsequent market collapse".
The recommendations
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Recommendations by the panel, led by Cllr Jane Corbett, included a national blueprint to strengthen regulations for development schemes, with a bid for a 'good practice pilot' to be launched in the city.
That's as well as increased clarity about the relationship between developers and the council - "with the power for the council to review appropriate work both during construction and on granting a certificate of practical completion".
A new code of practice was recommended for all elected representatives and officers, particularly in relation to invitations from developers, contractors and investors to meet, sponsor or represent the council at local, national and international events.
In a bid to protect the public from potential fraudulent schemes, one of the measures included a 'cooling off' period for people looking to invest their savings in developments and for a new code of conduct for legal practices to put greater emphasis on investment risks.
To ensure "transparency and scrutiny" on the sale of council land to developers, the report recommended a new approval process, with these disposals to be reported to the cabinet and select committee.
Developers buying land in this way would only be able to use the fractional sales model "in exceptional circumstances", it added.
It was also proposed that more financial details of company directors be recorded.
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Cllr Corbett said: “These recommendations would create a huge step in providing greater protection and understanding around the risks of investing in development schemes.
"It’s a strange world where people have more protection buying a coat or a meal than investing their life-savings into plans for a property.
“This lack of clarity and understanding has meant communities around the 海角视频 have been scarred by a litany of failed schemes, some of which are connected to criminal activity.
"This report will, I hope, help those who seek to invest in property developments and also by promoting good practice will lead to schemes which ensure more sustainable neighbourhoods.
“The world of property development is at best vague to a great many people, and requires a lot of trust from the investor that they are receiving the best possible legal and financial advice.
"Unfortunately our investigations have shown there to be a distinct lack of clarity on the financial risks people are taking and that has enabled some less than reputable people to take advantage."
Other proposals in the report included:
- A new Fractional Investment FAQ document - including key advice and warnings on the risks of any commercial investment, key contacts and clarity on the role of the council
- A 'development process diagram' - illustrating the process of concept to development completion, produced alongside the FAQ document
- For the council's due diligence policy to be updated - to ensure requirements are addressed surrounding the financial and legal backgrounds of potential developers, and clarity on how proposed development meets the council’s city plan and housing strategy. That's as well as reporting fractional developments to the landlord licensing team
- A recommendation that the cost to the council and fire service of any work or outstanding bills from failed developments between 2015 and 2020 be calculated
- Suggesting that the council writes formally to Companies House and the Charity Commission asking them to consider introducing a requirement that all directors and charity trustees be required to provide their details to the authority
- That developers and professional bodies associated with letting units in the city meet twice a year to work collaboratively, reporting findings into the council's chief executive
- A recommendation that professional bodies and the Solicitors Regulatory Authority "enhance messaging" about the risks of investing in commercial developments, including a cooling-off period for investors. It also suggests that disciplinary action is taken against those who fall below these standards
- That Government be requested to set up a pilot project in the city giving the council powers to inspect development sites that have chosen privately-approved inspectors
Cllr Corbett added: “It is vital that we stress that these recommendations are there to be questioned and consulted upon and where possible amended and improved, but the main thrust of its purpose is to provide more safeguards for the investor, the local authority and communities from errant developers.
“Despite the fact that Liverpool has witnessed some failed development schemes, which has in cases seen people lose their savings, the vast majority of schemes in the city are being delivered and meet the standards we want to set out in this new code of conduct for the planning, development and regeneration sectors."
The reaction
Cllr Richard Kemp, leader of the council's Lib Dem group, welcomed the majority of proposals in the report, including increased clarity over the relationship between developers and the council - and the transparency demanded over council purchases.
But he said there were faults including the report not explaining why the city has been the "epicentre of the fractional investment scandal in England" - and why the planning system "failed so spectacularly".
Cllr Kemp also complained that it had been "hideously delayed" - with it being over a year since the committee's last meeting.
He said it offered no support to "the people all over the world" who have lost hundreds of millions of pounds, adding: "We should be doing far more as a council to help them with seeking redress through the criminal and civil law systems."
Cllr Corbett said Cllr Kemp's assertion about Liverpool being the "epicentre" was "not based on evidence received by the panel".
She said the length of time it had taken to write the report had been "due to a combination of things". She had requested his presence on the final panel, but Cllr Kemp did not attend.
She said his assertion that no financial support had been offered was Cllr Kemp "misunderstanding the role and limits of council scrutiny panels", and that it could only "set out a series of findings and recommendations on a general sectoral or development model basis".