ROUND TABLE Failed Projects
in a country – often a foreign country – where the administrative system creaks, where there may be corruption and where the courts often work ineff ectively and/or very slowly. All those around the table could think of several such cases. So where does the criminality come in?
Well, in a small number of cases, it seems likely that there was fraud from the very inception of the project; there was never any serious intent to deliver. However, in many more cases it seems likely that criminality crept upon the project. A genuine project ran into diffi culties but
Is it acceptable for 40% - 80% of projects to fail?.
the developers believed that, by keeping going, they could ‘trade through’ the diffi culties and deliver the project. However, eventually, there came a point where there was no longer any prospect of delivering the project, yet they continued to take the public’s money. In many countries, that is a crime. Often, the only way they could continue to extract more money from the public was to lie to them – to deceive them as to the prospects of the project. That deception is, usually, also a criminal off ence. In a small number of cases, those a deceptions were accompanied by forged or falsifi ed documents. This is almost always a criminal off ence.
WHY IS THIS HAPPENING NOW? In the recent past there have a been a slew of major failures and a number of other large companies seem to be hanging on by the skin of their teeth; in many cases their prospects do not look good. This seems to be in stark contrast to all the reports of an improving economy and a better market. Simon suggested that, “The problem is they have just run out of money. They couldn’t survive long enough to benefi t from these improved conditions. They have kept the plates spinning for as long
26
as they could and, once the fi rst hint of lack of confi dence appears, the whole structure collapses very quickly.” Gareth agreed, “They run out of time, money and credibility. The end is then inevitable. It’s just a question of time.”
Neil and Sue both made the same point: we are probably now at the worst point in the cycle. If projects have enough capital and goodwill to survive for another six or 12 months they could yet turn things round. They could survive, though they are unlikely to make much or any profi t.
ARE THESE JUST LEGACY ISSUES OR IS THE PROBLEM STILL THERE? Neil suggested a bit of both: “Certainly, many of the projects failing now are failing as a combination of their (with hindsight) defective business plans, lack of sales and poor management decisions but there are other projects – perhaps not under immediate threat – where these same problems, coupled with continuously changing market conditions the world over, could yet bring them down. So this problem is far from over.”
Which takes us back to the original questions: can such failures be prevented or can we lessen the risk of them happening?
THE DANGER SIGNS
There was, again, remarkable agreement around the table – where there were nearly 100 years of experience tucking into lunch! See our ‘box out’ to the right.
WILL PROPOSALS FOR THE REGULATION OF THE SALE OF INVESTMENT PROPERTY HELP? The FCA (UK Financial Conduct Authority) and the police and regulators in the UK, the US and elsewhere are taking a keen interest in the fi eld of investment property. Too many people have lost too much money.
Around the table we all felt that that property sold as an investment should be regulated in some way. As a starting point, we could defi ne investment property as any property that is not sold for the person use of the buyer (including
THE DANGER SIGNS
Inexperienced developer on his fi rst project Very high commissions
Complex ownership structure, often based in countries with no connection with the place where the property is being built
Projects dependent to a large degree upon off -plan sales
Expensive advertising Large displays at exhibitions Celebrity endorsement Poorly drafted contracts
Projects in countries with no investor protection
Projects in countries with poor administrative and legal systems
Of course, some perfectly good projects display some of these features but that doesn’t stop them, especially if they occur together, being danger signs.
use as holiday accommodation). Should regulation apply just to the sale of ‘off plan’ properties? There are any number of ways in which the requirement for regulation could be defi ned and achieved; we will be exploring the options in a further article in OPP. Of course, regulation need not mean that investment property cannot be sold. For example, it could just limit who could sell it or lay down rules that had to be followed when dealing with a sale.
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