New Chinatown North Point Street
New Chinatown project was endorsed by city council, something the panel addressed

Liverpool considers code to govern ‘high-risk’ fractional market

The city council has for years failed to effectively police the fractional property investment market, leading to poor quality developments and driving up land prices, according to a report.

The report by the Fractional Investment Scrutiny Panel to Liverpool City Council’s regeneration committee highlighted “grave concerns” over the lack of advice given to investors, and the paucity of regulatory oversight of the market. The buy-to-let funding model has “impacted…the reputation of the city,” said the scrutiny panel made up of councillors drawn from the regeneration committee. The panel has set out recommendations to fix the problem that they would like to see brought in by the end of October.

The 21-page report states: “The panel considered [the] lack of effective policing and lack of ability to hold developers to account to be highly unsatisfactory.

“Where investor expectations were not realised, particularly in terms of poor quality workmanship or failure to pay promised financial returns, investors might be persuaded to cut corners with a view to maximising return, for example on rental yields, meaning that the end occupier, usually a tenant, reaped all the disadvantages.”

Fractional ownership involves multiple unrelated parties investing in, and sharing the risk of, ownership of a tangible asset such as real estate. One driver for this type of investment is that it enables buy-to-let owners to share the costs of maintaining property that they will not occupy themselves.

The problem is that while the benefits of the investment are shared, so too are the liabilities, meaning that if schemes stall or go into administration, a large number of investors, who typically have paid deposits of up to 80%, have money under threat.

“The absence of effective regulation and the relative ease of marketing such schemes and of attracting potential investors might well have the effect of driving up land prices as developers compete for sites for developing such schemes,” the report said.

The study came after Cllr Richard Kemp, a city councillor for more than 30 years and leader of the Liberal Democrat opposition, wrote an open letter to Liverpool Mayor Joe Anderson last month calling for action, following the collapse of companies such as developer Signature Living Hotel, owing £10m to retail investors, and a string of problem schemes such as the New Chinatown project by North Point Global, which was endorsed by the council.

‘Council must be bolder’

Kemp told Place North West last month that much more needs to be done following a spate of apartment schemes funded by fractional sales that ended up stalling or going into administration, with investors counting the cost. Kemp said: “Liverpool became the epicentre of fractional sales and there has to be a reason for that. The law is the same in other cities, so why did it happen here? Fractional sales have [all but] disappeared now, but there are other ways for unscrupulous developers to gull the unwary out of their money. The council must be bolder.”

The report this week calls for greater transparency into how the council sells its land and property, and into the relationships between developers and the council.

The council does not have legislative powers over the fractional model or projects that use it.

The report explained: “Problems have arisen nationally and locally typically whereby development commences before all of the units are financed or if architects’ certificates (and thereby funding) is released too early, resulting in schemes not being completed and developers entering into administration. In such scenarios the investors’ money may be completely lost as they do not own a lease or other protected interest in the land before completion, and the development becomes stalled as the cost of completion exceeds the likely finance which would be available to any potential purchaser of the site from the administrators.”

The panel’s recommendations include:

  • Code of conduct to deal with developers who approach council for endorsement or to accompany them to events
  • Due diligence including proof of funding and use of an escrow account
  • Ban disposals of council land for developments funded by fractional or similar models
  • Seek government funding for a pilot project to increase inspection of building sites during construction

“The panel’s concerns were directed at the lack of effective oversight, manifested principally by potential abuse of investors, by the way that schemes are marketed, by the way that investors are advised, and the impact of poor regulatory and statutory oversight on the city’s social, environmental and economic well-being. The panel’s recommendations are targeted at better investor protection, particularly where investors are consumers, and better scheme evolution. Some recommendations require more effective regulatory oversight, others might require legislation.”

The report will go to regeneration select committee next week. The recommendations will be processed and could be amended up to 31 October, including by cabinet, following which there is expected to be a consultation up to the end of the year.

Your Comments

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Worth noting that it is the Council who have sold key sites across the city centre which have then been developed and sold on a fractional basis.

New China Town, site on Renshaw St, various sites around the University district, land on Lydia Ann Street, just to name a few (most off market too).

Probably also worth remembering their old head office on Victoria St which sold to a local hotel company (off market) then sold off individual hotel rooms on a fractional basis

By Joseph

I hope it works, but what can Liverpool learn from other cities? Have they consulted with Manchester, Leeds or other areas which are experiencing increased investment, what are they doing right to maintain the flow of sustainable development, is their investment a good mixture of different funding schemes and has Liverpool suffered from a proportionally high level of fractional sales in relation to other areas and if so, why? The reason for this must be explored and addressed because it has definitely affected the image of Liverpool as a good place to invest. The council must also ask some difficult questions about itself too and why this has happened again and again?

By Liverpolitis

You can file this under ‘something must be done’.

The reality is that, whilst the regulatory oversight called for is quite correct, the council would not be allowed to provide it – it’s a function for central government. Plus door, stable, horse, bolt: this is a funding model that has been and gone, as have the two or three principal proponents of it in the Liverpool market.

By Sceptical

Who`s to blame for this one?

By Anonymous

They love to paint a bad picture of Liverpool. Meanwhile everything is good in the other city……

Sigh

By Michael McDonut

its not our fault

By Anonymous

I agree – the regulatory oversight for this sort of scheme is virtually non-existent and what there is seems to be poorly enforced, so when it all goes pear shaped, consumers get the rap. I’ve only had time to glance at the recommendations, they seem sensible. I hope that something comes of this report and it doesn’t just gather dust on a council shelf over at Cunard Buildings.

LL

By Liver lad

2 years for something that could have been written in 2 days….

By Daniel

The thing with Liverpool is is something goes wrong , the press jump all over it, for example gun crime and robberies etc are okay in Manchester London but if this is Liverpool then them scousers are all the same,, when i reality other cities have a higher level of deprivation crime etc same with developments Manchester has this issue and also London Bristol , but Liverpool is the worst because its Liverpool

By Anonymous

The returns just aren’t there unfortunately.

By Anon

@anonymous. Manchester once got named nick named Gunchester by the press. What about the spice and homeless problem in Manchester, that the national press have been enjoying recently? Liverpudlians seem to love the bad stories about Piccadilly Gardens. I think the problem really is, that you think anything perceived as bad in Liverpool should go unreported, so you can then say Liverpool is forgotten.

Victim mentality.

By Poynton guy

I think you’re being paranoid Anon. This article is pointing about a serious issue that merits exposure as it’s harming the city. If there is an issue with Liverpool it’s that some of its residents seem to take exception to any criticism or negative publicity whatsoever and instead resort to playing the victim card once again. That’s just counter productive and doesn’t help anyone.

By Chopped Liver

Nimbyism, parochialism, paranoia, conspiracy theories and blame. …We`re not English we`re Scousers.

By Anonymous

This has always been the master plan. They will be taking our passport office away from us next and relocating it in the regional capital. #northwestism

By Michael McDonut

Mad how many people think comments on here are genuinely from people in places they state to be. Fine art trolling going on in some cases.

By L17

There are a fair few schemes in Manchester that have failed to be delivered too. No doubt Leeds and Birmingham etc similar. The government should look at the national picture as Liverpool council are doing.

By Anon

Many years ago. larger Councils insisted upon Development Licences for land / buildings they owned, where they wanted redevelopment. These were time, condition and performance bound agreements. Its not a difficult concept; although City Councils dont own all land / buildings fractional investment is involved in.

By Billy

The only development stalled in Mcr was being built by a certain Liverpool developer.

By Anon

Not really wanting to dwell on the “victim” thing , but it`s fairly well documented that Thatcher`s government were actively proposing the “managed decline” of Liverpool,which is not a good message for developers and companies,…..anyway enough of that we must move forwards and attract investment but it has to be said we have not helped ourselves eg with our stance of height restrictions on some buildings eg Simpson`s Brunswick tower(refused) the Pelli building One Park West(lopped),and numerous others,also the World Heritage restrictions have not helped.

By sound

The “managed decline” thing has turned into a bit of an urban myth.

There was NEVER a policy of managed decline. What people are referring to are minutes of a government meeting in which they’re discussing the impact of all the government assistance that had already been directed towards Merseyside – which was considerable – and wondering whether they were throwing good money after bad.

That’s all it was, nothing more nothing less. They were de-classified minutes of a meeting released after 30 years as is standard procedure. Now I know the truth might be somewhat disappointing to those who are determine to see conspiracy or a Machiavellian agenda to do Liverpool down but the truth is much more mundane I’m afraid.

By Sir Humph

I really hope Chinatown gets redeveloped. Those drawing plans looking fantastic. It would heighten the city centre even more… I hope the financial disagreements get sorted ASAP as Liverpool is still lacking behind all other cities in terms of development.

By David

David… There isn’t a cat in hells chance

By Daniel

Sir Geoffrey Howe, now Lord Howe speaking 30 December 2011

“I cannot help feeling that the option of managed decline is one which we should not forget altogether. We must not expend all our limited resources in trying to make water flow uphill.”

He acknowledged the suggestion the city could be left to decline was potentially explosive.

“This is not a term for use, even privately,” he warned Mrs Thatcher.

But speaking to the BBC News Channel on Friday (Dec 2011) Lord Howe said: “I wasn’t in any sense advocating managed decline. The whole of that is based on some misunderstanding of some short letter with specific objectives.”

By From the Beeb

Liverpool is streets ahead of other cities as a pleasant and exciting place to live. Other cities may have built more soulless flats but Liverpool is a much nicer place. None of the Pennine cities can stand up to it.

By Red Squirrel

All these cock-ups have happened on Anderson’s watch.Litterpools mis-guided love affair with the Labour party should have come to an end a longtime ago,and Anderson put out to pasture.The number of clowns and chancers all with their noses in the trough, couldn’t be counted.No wonder this city is a laughing stock.

By M O'Donovan

I think Britain doesn`t deserve Liverpool.

By Liverpool romance

Tbf some of the market towns in the Pennines are pretty nice these days.
You can see why they have become so popular.

By Anonymous

I wonder what the most liveable city is in the UK?

By Anonymous

Most liveable? London easily

By Lol

@Lol

Not according to Google…

By Anonymous