Warnings and Tips about Investing

Problems with Property bonds
Several property bonds have run into problems. In May 2001, the issuer of the Metropolis bonds defaulted on its obligation to over 1600 investors to redeem their bonds for $21 million, and to pay interest owing of around $4.4 million. At this stage it isn't clear what investors will eventually get. They may not get all the interest or all their principal back - and they may have to wait up to three years from the original repayment date for their money.

More than 600 investors in the Ballantyne bonds were due to be repaid $8 million plus interest. Investors will ultimately recover less than half the money they invested.

One problem with some bonds is that the company issuing the bonds may not be the owner of the property. You may not have the security you think you have, and you don't get the disclosures about the company that will ultimately use your money.

Check out Property Syndicates
These are usually a combination of a shareholding and a fixed interest investment. The Securities Commission has criticised the way they have been promoted. Ernst & Young Real Estate Group has labelled syndicates 'genetically modified real estate'.

They've been advertised as worry-free investments. 'Property income for your retirement,' promised a November newspaper ad for a syndicate run by property investment company Dominion Funds. 'All the benefits of direct property ownership - without the hassles!'

Unfortunately, this isn't quite true. When you want your money back, you'll need to find a buyer for your investment, just as property owners need to find a buyer for a property.

In late 2001, one $5000 investment in a property syndicate was sold by an investor for just $3500 - a walloping loss. (Gains are much less common, but do happen.)

Over $1 billion has been invested in property syndicates, giving many investors high returns. But those returns are compensation for some big risks.