Beware swindlers posing as developers

News > news - 01 Jun 2005
The authorities have done much in recent years to further consumer protection in the real estate industry, but they have apparently not found a way to stop people being bilked out of housing deposits.

Jo Pelser, MD of leading residential developer Sable Homes, says in a Johannesburg there are all too many instances of fraudsters promising land and homes to would-be homeowners, taking deposits and then disappearing with this money.

“In fact, it seems that as the market expands, the more bogus developers and marketing agents there are just waiting to prey on emerging buyers.”

Typically, what these swindlers do is market a new “development” or “housing project”, sometimes complete with site layouts, houseplans and pretty pictures of what the finished project will look like, and offer the stands or homes at highly-attractive “launch” prices.

“In this sense,” says Pelser, “the rapid rise in home prices over the past few years plays right into their hands, as it has become more difficult for buyers to afford their first home and gain entry to the market.

“It is not hard for the fraudsters then to convince buyers that a very well-priced project is selling out fast, and that they should pay a deposit to secure their stand or home and avoid losing out on a good deal. And then, having gathered up as many deposits as they can, they simply shut up shop and vanish.”

In most cases, he says, the swindlers don’t even have an interest in the land on which the development was supposed to take place, and in many instances they use false names, so there is no way for their victims to trace them.

“What is even worse is when victims have borrowed the money to make the deposits, as they are left having to repay the lender, often at high rates of interest. This often puts paid to their hopes of home ownership entirely.”

Of course, Pelser says, victims do have recourse to various organisations to get redress. The Estate Agency Affairs Board, for example, can use its Fidelity Fund to reimburse people who have been bilked by anyone acting as an estate agent. “But the process is notoriously slow and in any case, most of the people who need it most are not informed about where to go for help.

“Besides, prevention is always better than cure, so the focus of consumer protection organisations should be primarily on disseminating information that helps consumers to protect themselves in the property sales field.

“To start with, they should run a campaign emphasising that would-be homebuyers should never hand over any money directly to someone calling themselves a developer or an estate agent. Reputable operators will always request that any deposit due is paid into a proper estate agency or attorney’s trust account.”

This type of basic information, Pelser says, would also go a long way to prevent tenants being crooked out of their security deposits, and homeowners being swindled by building contractors who take deposits “for materials” and are never seen again.
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