The Capital Markets Authority (CMA) has told investors in a Munyonyo hotel project, operated by Buildnet, a real estate developer, which promises an 8.5 percent return on investment, that they are risking their money, noting the project is an “unapproved” scheme.
In a notice yesterday, CMA said Buildnet had not received approval to offer securities to the public, noting that the company’s call for the public to invest in its WaterFront hotel complex in Munyonyo, Kampala was illegal.
Buildnet has been running a promotional campaign, inviting prospective investors to invest a minimum of $99,000 and a maximum of $269,000 for a share in its project, with a promise of $700 in monthly returns.
However, Mr Denis Kizito, the CMA director of market supervision, said yesterday that Buildnet was acting illegally by asking the public to buy shares in an offer that has no transaction adviser – a specialist who assists investors in structuring investment agreements – nor has it been approved as required by the law.
“We haven’t talked to Buildnet, but you understand it’s our responsibility to protect investors even before a company talks to us,” he said, noting that Buildnet should go through the right procedure and get approval from CMA before inviting the public to invest in its project in return for a stake.
“The earlier they come to us, the better they preserve their reputation, and even the better they lessen the financial cost. They [also] need to return the money they have collected from investors. After, they can do this transaction in a way it is supposed to be done. You can easily call them a Ponzi scheme because they are asking people money to make an investment without approval from us [CMA],” Mr Kizito added.
Mr Denis Kizito says that by promising a monthly return on investment, Buildnet was acting illegally. Photo / Courtesy
However, Mr Ibrahim Semaganda, the Buildnet managing director, yesterday told Daily Monitor that the public call could have been misinterpreted by CMA, noting that they were not selling any shares.
“We are not selling securities or shares but apartments. It is like an investment where one is buying an apartment that comes with guaranteed returns. WaterFront is not a company, and shares apply to a company. We believe this is just a misinterpretation between us and CMA. We would have approached CMA if we were intentionally selling shares in Buildnet or even made WaterFront a company,” he said in a telephone interview.
Monitor understands that Buildnet has made 15 out of 49 offered sales during the pre-launch with five investors paying $99,000, while another five paid $149,000, one ($169,000), two ($239,000) and two other investors paid $269,000.
As of October 16, the total amount from investors, according to details available to us, was $2.43m but is likely to increase due to an enhanced publicity campaign.
Dr Semaganda also said their project was legitimate and had since asked their lawyers to engage CMA with a proper explanation.
Buildnet expects to complete the project by at least January next year.
The public call, Buildnet indicated seeks to mobilise resources to put up the hotel complex after which they, as developers, will handle occupancy and management, with a guaranteed repayment of investment capital in about 11 and half years.
“We are not selling you just apartments, we are selling you an investment because buying an apartment involves tenants and management, but here you invest and we take care of the rest. You only get your returns,” Dr Semaganda said during the launch of the project, on October 18.
On its website, Buildnet has projected a 6 percent capital growth and a 14.5 percent combined annual return, which it says will double the investment value in 10 years.
Buildnet also claims that in 10 years, investors will have received roughly three times their initial investment, or a return of 300 percent, which is grossly higher than returns on other investment options available on the market, such as insurance, bonds, and unit trusts, among others.
However, CMA said the promise of guaranteed monthly income from an investment was subject to regulation and must be approved, failure of which the vendor is deemed to have violated Section 106 of the Capital Markets Authority Act, an offense that could lead to prosecution.
Projects worked on
Buildnet has previously worked on several projects, among which include Pelican Villas in Kira, Wakiso District, Creekside Apartments, Naalya, Najjera Heights Apartments, Dove Apartments, Florida Apartments, Raven Apartments and Olive Homes, Naalya.