How a couple got duped into two bad overseas property deals

The saga where a Singapore couple bought into two dubious overseas property projects is a stark reminder of the way an appealing “cheap” deal can fast turn into a costly nightmare.

With even a small new private apartment here going for close to $1 million or more, it is certainly tempting for investors to succumb to the lure of owning a foreign property that costs as little as $50,000.

However, unless you are very familiar with the country you are investing in, it is risky to dabble in real estate, especially if you know next to nothing about the foreign developer and viability of the project.

This was what happened to the couple who spent about $800,000 to buy 16 properties in two projects in different countries in 2012.

Ironically, the couple, who both worked as real estate agents, were duped into buying these properties by other agents here who oversold the projects and presented untrue information to make them believe they stood to make huge returns.

Instead of rejoicing over an expected property boom, the pair found themselves facing total losses because both projects turned out to be duds.

Fortunately, they had made use of their real estate experience and asked the right questions. They had also kept records of what transpired in the deals.

This gave them the ammunition to take the two different sellers to court for misleading them with untrue information.

The first case, which involved an investment of $200,000 into three properties in New Zealand, was fought over three rounds, all the way to the Court of Appeal. In 2019, Singapore’s highest court ruled that the Singapore company and its boss who brokered the deal had to refund the couple.

The couple scored their second High Court win in 2023 over their $600,000 investment into 13 properties in Brazil. In an outcome that was almost similar to that of their first battle, the court found that the Singapore agents involved in the deal had made fraudulent misrepresentations.

While the couple should thank their lucky stars for getting back their original investments, the ordeal was no less painful because they had to foot part of their own legal bills and endure the stress of being entrapped by two bad investments for over a decade.

The boss’ false assurance

The sorry saga began in January 2012 when the couple attended a marketing event here for a New Zealand housing project being developed by Albany Heights Villas.

A sales representative told them that the developer had a good track record of successful developments and that the first phase of the project was already being built because the demand for its homes was good.

She added that money paid by buyers would be held in a trust account by New Zealand lawyers, and the developer would have access to the funds only during the construction stages.

The couple asked to speak to her boss, the key executive officer of the real estate agency, because they wanted to verify that the project was a good investment.

The boss backed his agent’s claims and went on to assure them that the deal was a good one because they had done all the necessary “due diligence” to check on the ownership and legality of the project and found that the land titles and all the details relating to the construction and marketing were in order.

That gave the couple the confidence to put down around $200,000 as the “reservation deposit” for three units, but they never saw the homes as the developer later went bust.

They also did not get their money back as the people behind the various foreign companies that concocted the scheme managed to siphon off substantial sums that had been paid by buyers.

When the couple sued the real estate agency and its boss, it emerged during the trial that the developer in New Zealand did not even have the title and planning permission for the land.

The Court of Appeal ruled that as the boss was found to have made those untrue representations to the couple, both he and his company had to refund the purchase price plus interest.

Checks on developer were not done

The second deal was too good to be true – 13 units of freehold “Ecohouses” in Brazil for only about $600,000 plus a chance to earn a 20 per cent return, or about $120,000, in just a year after the purchase.

The couple went ahead with their Brazil investment by the end of 2012, urged on in part by sales agents who had only good things to say about the project.

The agents claimed that, in addition to spending a year in Brazil to study the project and the developer, they had also invested a six-figure sum on due diligence checks to ensure that the investment was safe.

But the project turned out to be a sham, and all investors lost their money because the developer did not even own the land on which the homes were to be built.

The couple sued the agents and the High Court ruled in their favour because the assurances that checks had been done were false.

Two important lessons for investors

The couple’s disputes highlight two common misconceptions that often give false assurances to property investors.

The first is the use of escrow accounts, which are often used to hold money as a form of securities, so parties involved in deals are protected.

When it concerns the purchase of foreign real estate, buyers are often told that their funds would all be deposited in such accounts and disbursed only in line with progressive stages of construction.

In this way, the buyers are supposedly protected because the developer would be fully paid only when the homes are ready to be occupied.

But such guarantees are only as good as the people involved in the deals because in this case, the couple’s money was moved out of these accounts even though not a single brick had been laid.

Investors should also be wary whenever common investment terms such as “due diligence” are thrown at them.

This is especially true when buying foreign property because buyers often make decisions based on the checks that are done by people who are peddling the deals.

The reality is that Singapore agents would also face problems in conducting proper checks in another country unless they already had offices there or were working with reputable partners there.

Even if you are keen to jump in, it pays to check whether the Singapore company that is brokering the deal has the ability to refund you if it all goes belly up.

Just because cases involving Singapore developers going bust are uncommon, you should never assume all foreign developers are equally trustworthy.

Finally, never buy a foreign property just because it is a lot cheaper than similar ones here: You should at least be familiar with the market there, or you may end up buying a home that even locals would steer clear of.

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

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