Facebook is awash with companies advertising investments in the social housing market.
But the numbers being promised raise eyebrows for all the wrong reasons.
Posing as a potential investor, we replied to Facebook ads for social housing investment schemes, and were promised returns of up to 25% a year.
The average gross rental yield is 5.6%, according to Zoopla, so 25% seems ambitious – especially when you factor in the fees being charged by the investment scheme promoters themselves.
Worse still, with Britain in the grip of a housing crisis, investors who might think they’re doing good are instead participating in schemes that could prove a poor deal for the taxpayer.
Read on to find out why social housing investment schemes need particular scrutiny.
Nonsense claims
Among the firms recruiting private investors is Citygate Housing Limited, which offers returns of 20% per year for three years.
I replied to its Facebook ad and was phoned by a sales rep who said that Citygate works in the affordable housing sector, which provides homes at below-market rents. Unaware that she was speaking to a journalist, the rep claimed that they can offer such high returns, thanks to the Government’s Affordable Housing Programme.
‘The real money comes in because there’s this £11.5bn fund, so councils are not limited in how much rent they can pay,’ she claimed. ‘Councils can tap into the fund and pay us 40% to 60% more than the local area’s rents.’
This is nonsense. The Affordable Housing Programme funds capital spending for house building, it does not subsidise rents. Citygate Housing’s director Shay Salih admitted as much when interviewed by Which? Money, saying that the rep was a trainee working for a third-party marketing firm.
The apartment offered to me as a social housing lettings investment is currently being advertised on a holiday lettings website at £174 a night
‘It’s very wrong what she said, we have nothing to do with the Affordable Housing Programme,’ he conceded, explaining that his firm worked in the temporary accommodation sector, sub-leasing properties to accommodation providers. He also apologised for the sales rep’s false claim that the Property Ombudsman ‘regulate and have approved this’.
The apartment that was offered to me as a social housing lettings investment is currently being advertised on a holiday lettings website at £174 a night. The director ‘apologised for the confusion’ when I put this to him.
Check before you invest
Don’t assume an advert on social media or a search engine has been vetted, or that a slick website is a sign that a firm is legitimate. Instead:
- Search the firm’s name on Financial Conduct Authority Warning List – if it’s there, don’t touch it with a bargepole
- Check the firm is regulated using the Financial Services Register – If you can’t find it, or its status is unclear, give it a miss
- Compare with alternatives – much higher promised returns should raise suspicions, and you should take into account how high fees could hit your profits
Find out more: How to spot an investment scam
‘All parties are winning. Except the taxpayer, unfortunately’
Salih said that his company makes a profit of around 15% on top of the 20% taken by investors, denying that this was profiteering.
He cited figures that London councils spend £110m a month on temporary accommodation, from council-owned, not-for-profit firm Capital Letters, which supports landlords.
‘We are tapping into that budget,’ Salih told us. ‘We are providing properties that meet all the regulations. The landlords get their rent, we make our profit, and clients who help fund us get their profit. All parties are winning. Except the taxpayer, unfortunately.’
Elizabeth Harper, director of operations at Capital Letters, responded: ‘There is nothing ethical about an investment in temporary accommodation that offers large profits.’
These organisations, she claims, are ‘leeching money from local councils at a time when they are already underfunded – this isn’t allocated budget, this is emergency overspend and it is taxpayers’ money.’
‘There is nothing ethical about an investment in temporary accommodation that offers large profits’
Another firm advertising on Facebook is Unique Property Investment Group Limited. It operates in the assisted-housing market, which caters for people with special needs, calling its investments ‘super secure and ethical’ and offering returns of 25% per year.
‘The returns are the best in the market right now… the government has put aside around £25bn for assisted living,’ said its sales rep in a call. ‘It’s a guaranteed return for us and more profitable than going to the retail market.’
He added some questionable tax advice, saying he knew of two people who invested through a relative – a student at university – who was below the income tax threshold: ‘A lot of my clients invest through a limited company or whoever in the family is in a lower tax bracket.’
- Find out more: Ethical investing explained
High fees leave little to be invested
Also advertising on Facebook is affordable housing investment company Alderley Group 2019 Ltd.
Its website claims that Homes England (the Government’s affordable housing body) is one of its partners, which Homes England denies.
Alderley Group offers up to 17% annual returns on loan notes and boasts of ‘robust investor security’. In contrast, its small print has the stark warning: ‘Investing in unlisted corporate loan notes involves significant risk of default and loss of capital.’
There was also the admission that up to 20% of investor funds go to pay its marketing firms and another 20% goes on running costs, leaving only 60% of investor money to generate the promised returns.
Neither Alderley Group 2019 nor Unique Property Investment Group replied to questions, including why they were borrowing from private investors at such high rates when business loans would be far cheaper, or to any of the other allegations in this article.
The Ministry for Housing, Communities and Local Government said that it does not recognise the profit claims being made. It thanked Which? Money for bringing the issue to its attention and is now conducting its own investigation.
Unregulated firms
Neither Citygate, Unique Property Group or Alderley Group 2019 are regulated by the Financial Conduct Authority (FCA). You can see if firms are registered by using the Financial Services Register.
Asked if this meant there were investment risks, Mr Salih of Citygate Housing said: ‘There’s nothing guaranteed in life. Providers or councils could go bust or be late with payments, but it hasn’t happened yet.’
At least one business in this market has appeared on the FCA Warning List of firms not authorised to operate in the UK. Axis Wealth Alternative Investments boasts on Facebook of 15% returns from social housing. It is unregulated, the FCA states: ‘This means it’s unlikely you’d get your money back if the firm goes out of business.’
You might want to think twice before investing with unauthorised firms offering implausible returns in order to finance social housing.
UK banks invest in housing associations. However, you’re unable to insist that money in your savings account, for instance, should be directed to this purpose.
A slightly more targeted approach is taken by Triodos Bank, which invests in renewable energy, nature conservation and social housing. Again, you can’t pick exactly where your money goes, but you can see which projects they finance on their website.
Or you could invest in UK housebuilders, either directly by buying shares or via investment funds and investment trusts, using an investment platform. This involves risk – you could get back less than you invested – and much of the homes built by these customers are not social housing.
While some real estate investment trusts (REITs) specialise in social housing, these are complicated investments and you should get financial advice.
- Find out more: Best investment platforms in the UK 2024