3 min read
Author: Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Reviewed by: Ed McKnight
Our Resident Economist, with a GradDipEcon and over five years at Opes Partners, is a trusted contributor to NZ Property Investor, Informed Investor, Stuff, Business Desk, and OneRoof.
The Du Val group has gone into temporary receivership.
The police and Financial Markets Authority (FMA) did a dawn raid. They turned up at the house of Du Val's founders, Kenyon and Charlotte Clarke, before 7am.
The news has caused a stir. Many investors have asked me, “Andrew, what’s your take?”
I believe in being as transparent and honest as I can. So, in this article, you’ll learn what happened and what the potential fallout is.
The FMA has not stated the exact reason for the dawn raid. But they have taken action against Du Val before. This was around their investment funds.
For context, Du Val started a number of funds and raised money from the public.
Here’s the important part. They chose to advertise these funds to ‘wholesale investors’ only. Some of these funds advertised a 10% return.
Targeting wholesale investors meant they didn’t have to follow all the usual rules. That’s because they’re only targeting sophisticated investors.
But interest rates soared, and the property market went through a rough patch. Du Val couldn't make some of their payments.
The real issue, though, is that the FMA is worried that Du Val was taking money from the wrong people. They were allegedly raising money from investors who weren’t wholesale investors.
So, investors are not receiving their returns (and can’t get their money back). But Du Val potentially took their money illegally in the first place.
Some investors are concerned that Du Val is the first domino to fall. Perhaps this could have a flow-on effect on other developers.
While Du Val’s founders had a large social media presence, the company itself was small.
Over the last 4 years, they only consented 159 units. Compare that to Mike Greer, who consented 2,418 properties. That’s 18.6x the number Du Val consented.
If a large developer like Mike Greer fell over, that would be massive. With Du Val, I don’t see as much risk for other developers.
And to be clear. I am solely using Mike Greer as an example of a large, established player in the industry. I’m not trying to draw any connection between the companies.
There are 3 groups I’m most worried about in this story.
First, the plumbers, electricians and other tradies who did work for Du Val and have not been paid.
Some are owed up to $1 million. If these small businesses aren’t paid, that impacts their families. Some small businesses may close.
Second, the investors who put money in Du Val funds. They may lose some of their investments. My hope is that they’ll eventually be paid back.
Once we get the report from PwC (the receivers), we’ll know if that’s likely.
Lastly, I'm worried about the people who bought properties from Du Val. Specifically, the ones that are still under construction.
Some of their projects are heavily delayed.
Let’s say you bought a property from them off the plans? What happens if the property never gets built?
Yes, you should get your deposit back. But you’ve put your life on hold for a property you can never move into (or rent out).
On top of that, property prices may have gone up since you bought. So you might not be able to buy again in today’s market.
I’ve always believed in transparency. So, for the last few years, I’ve publicly listed the developers we at Opes do and don’t recommend.
Du Val has been on the "do not recommend" list for years. We even did a full video review of their properties to explain the reason why.
This bad story is a good reminder. Property investors need to carefully consider who they buy from.
Ask yourself if a developer has good character. Will they build a good property on time?
Now, Kenyon Clarke (Du Val’s founder) has a big personality. He’s shared photos of himself on Instagram flying in private jets and driving a Rolls Royce.
I want to be clear. That’s not why Du Val has been on my “do not recommend” list.
It’s because I haven’t been convinced that they build quality properties on time. And I’ve not been convinced that those properties are good investments.
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.
