My sticky nosing over at AAM tells me this outrageous scam is hitting the skids.
These so-called “buy-to-let” schemes were billed as a cash flow easy way to get into property. Of course the scandal is that this never really was a property play in the way it was sold, marketed, boosted and discussed among the chattering classes.
This was and is still a corporate bond, nothing more nothing less.
A French company raised capital to build some form of holiday camp. They raise the bulk of the capital by issuing bonds that paid some form of coupon, possibly “guarranteed”, but not necessarily. So it could have even been like a preference share.
In return the buyer of this bond was given security in the form of some of the camps assets (one of its huts, houses or whatever). It wasn’t yours as you had no or very strictly defined and limited rights of use. You had to let the company rent it out at the rent it decided (stc) and only get out if you could find some sucker to buy it off you on exactly the same terms.
The big con was that people were led to believe and aloud to believe that they “owned” a property, that they could get “capital gain” from it and make a tidy sum.
Of course, this was never the case. The value of these things was and will always by the discount value of the expected rental streams. The discount applied will be a function of the credit spread you would ant to put on these companies, which should have always been pretty high.
The scandal is mainly an Irish one. In France these things were set up on the back of tax advantages that to create a market for long duration fixed income investments for pensioners (with the avantage that the income should have some inflation linkage, being tied to holiday rental rates). Not safe as houses for a bond, but it would have its place.
Only in Ireland was this billed as “buying property”. And now people are looking at the massive hit because credit spreads have increased dramatically and the price of these bonds is badly eroded, even in those cases where they haven’t defaulted - in which case you will get a claim on your security - a house or hut in a holiday camp that is closed.
I would love to see this scam get a proper coverage in the media.