IFAs hit by overseas property failures

The number of IFAs facing issues with overseas property investments has soared over the last few years as the fall-out from the financial crisis has hit the schemes hard, according to a legal services firm.

Neil Heaney, CEO of property recovery company Judicare, says issues ranging from late or non-delivery of property are creating a “huge concern” for IFAs as client investments turn sour.

“Typically, these problems will involve late or non-delivery of the property, no licences to build from developers, no bank guarantees from lawyers originally given to the client by the developer and a whole myriad of other issues all of which result in a great deal of distress for the client,” says Heaney.

He says the number of IFAs contacting his firm has shot up over the last three to four years which he attributes to the global economic fallout.

“Over the last few years, overseas property has been a very strong asset class – nothing has outstripped it. It has been an unregulated industry but IFAs have advised clients an overseas property would be a productive addition to their portfolios.

“However, the credit crunch has meant investors have encountered problems.”

He says the problem is particularly acute in emerging market economies such as Dubai and Bulgaria and other regions traditionally
targeted by UK investors including Spain and 
Portugal.

IFAs have been frustrated by an absence of feedback from developers and are consequently unable to provide investment updates for clients, says Heaney. The problem is often exacerbated by a lack of access for IFAs to lawyers in overseas regions.

Difficulties have mainly arisen from developers over-extending themselves during the credit crisis and subsequent knock-on effects, he adds. In some cases, developers have disappeared with funds.

Whilst the majority of overseas investment contracts are set up with delivery dates and penalty clauses allowing for the return of funds, a significant minority lack such protection. But Heaney says other than a couple of high-profile cases, fraud is relatively rare.

There is no suggestion IFAs have acted improperly, with Heaney stressing in Judicare’s experience their advice was always delivered with the best intentions. He urges advisers to thoroughly research a property before advising clients to invest.

“Make sure you do the due diligence regarding the investment and developer and seek independent lawyers to act for clients in order to protect their purchase. If there is a problemdo not ignore it - deal with it.”

The legal services firm has property lawyers stationed around the world and works with individuals and groups to resolve disputes arising from miss-sold or problematic overseas property purchases.