KEY POINTS:
A couple who invested with Blue Chip are having to sell their home to fund the purchase of two apartments worth $1.2 million, following the collapse of 19 Blue Chip-related companies.
As liquidators prepare their initial report into the 19 companies associated with the property investment scheme, investors in a Blue Chip product known as a PIP are learning that they are the purchasers of soon-to-be completed central Auckland apartments they have no hope of affording.
Early last year, John and Linda Britton put a 10 per cent deposit on the apartments in the Bianco development in Turner St via two Blue Chip "Premium Income Product" schemes.
Under the two-year PIPs, Blue Chip held an option to buy the properties just before completion, and paid the Katikati couple a 16 per cent "option fee" on their deposit in the interim.
What the Brittons did not comprehend was that if Blue Chip didn't buy the apartments, they were responsible for settling on the properties.
Linda Britton said she and her husband questioned their Blue Chip adviser closely about what would happen if Blue Chip didn't exercise its option, and he assured them there would be a buyer for the properties.
"At no stage did they turn around and say, 'look the buck's going to stop with you if this deal falls over'," she said. In September, Blue Chip wrote saying it was exercising its option to purchase, and the monthly option fees would reduce until the deal was settled. But then the monthly payments ceased altogether, and "the rest is history", she said.
Last week the Brittons received a letter from the developers of Bianco, saying it was expected to be completed in October when settlement on the apartments would be due. "Turn and Wave Limited's involvement with any agreements made with Blue Chip Limited are limited to the Sale and Purchase Agreement for your apartment and to the lease," the company wrote. The PIP states if Blue Chip did not exercise its option to buy, it would find a leaseholder for the investor.
Retired Hamilton couple Alan and Irene Strangwick also had no idea they could end up owning real estate when they invested in a PIP in December 2006. Now they are left holding sale and purchase agreements on two apartments - in the Chatham on Pitt St, and the Barclay on Albert St - worth $900,000. They took out a $91,000 mortgage on their home to invest in the PIPs. The Barclay is nearing completion, but the Chatham is still a near-empty site.
Alan Strangwick said they were not given copies of their PIP documentation until they asked for them earlier this month.
"Now having seen the documents you think, well, how the hell could you be that stupid to have signed? But at the time, you were offered an attractive proposition, it looked like the kind of income flow we wanted."
Both couples' deposits are being held in solicitors' trust accounts.
Industry insiders liken the PIPs to mezzanine lending - the high-interest loans finance companies give to developers until their projects are completed and sold.
Financial adviser Liz Koh said products like the PIPs were not commonplace and the high level of risk did not suit the small investor. "I would question the financial and legal advice that was given to [these couples]."
THE SMALL PRINT
What are Blue Chip Premium Investment Products?
* Investor puts down a 10 per cent deposit on a yet-to-be built apartment
* Blue Chip pays them an annual 16 per cent 'option fee' on the deposit
* Blue Chip buys the apartment just before it's completed, returning the initial deposit to the investor
* This way the investor is never actually the owner
* But investors don't realise that if Blue Chip doesn't come through, they are liable for buying the property
