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Not so Grand Designs: eco housing bond investors face huge losses

James Gard  |  28 Aug 2019Text size  Decrease  Increase  |  
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Investors in mini-bond schemes backed by Kevin McCloud, presenter of the ABC program Grand Designs, are set to lose up to 97 per cent of their money. 

McCloud founded eco-friendly housing company HAB - which stands for “Happiness, Architecture, Beauty” - in 2007. From 2013 to 2017, investors piled millions into a number of mini-bond schemes issued by the firm offering returns of up to 9 per cent a year.

Investments were set to be used to develop environmentally friendly housing projects across the UK, including 5-bedroom homes in Cumnor Hill, Oxfordshire, which sold for more than £1.4 million ($2.54 million) and promised "bird houses, bat bricks and insect hideaways sprinkled throughout the site".

Such was the popularity of the bonds that the most recently issued one, launched in 2017, beat its £1 million fundraising target, attracting a hefty £2.4 million from 282 investors. 

Commenting at the time, McCloud said: "It's great that so many people have chosen to invest with us. The crowd-fund total has surpassed our expectations. Having met some of our new investors, it is clear that we have a shared passion for creating joyful living spaces that have a strong environmental and social balance."

But investors have now been told they stand to lose up to 97 per cent of their initial investment at worst, meaning they could get back as little as 3p for every £1 invested. In a best-case scenario investors may get 74 per cent of their original investment back.

HAB has proposed an alternative restructuring plan that would mean investors would not see their money for another five years.

McCloud rose to prominence as presenter of Channel 4’s Grand Designs, which has been running since April 1999, and is a staple on Australian screens via the ABC. In 2012, he accompanied then UK housing minister Grant Shapps on official trade delegations as a representative of the self-build industry.  

HAB’s mission is to “make homes that lift the spirits: that are a pleasure to live in and a joy to behold”, according to McCloud.

While selling the properties built under the scheme has not been a problem, HAB and its subsidiaries have struggled to make money. Directors of HAB Land Finance PLC “do not believe the company believe has adequate resources to continue in operational existence for the foreseeable future” after posting a loss of £1.7 million in 2018. That's up from a loss of just £9,500 the year before. 

Risks mount

According to Companies House data, McCloud was a director of HAB Land Finance PLC from December 2016 to February 2018 and a director of parent company HAB Land Ltd from May 2014 to February 2018.

The directors of HAB Land Finance PLC said there was a significant risk that payments made to the parent company, HAB Land Limited, will not be repaid. At the time the results were published, last month, the company said it would write to bondholders to propose a plan to raise enough funds to repay them in full.

It comes just two weeks after mini-bond firm Asset Life went into administration and just months after the Financial Conduct Authority warned that the financial products offered by the company could be scams.

The collapse of London Capital & Finance in May this year left 11,000 investors £230 million out of pocket. The government has launched an investigation in the way LCF was regulated before and during its collapse. Although its investors were not covered by the Financial Services Compensation Scheme (FSCS), the scheme’s administrators are looking at ways to claw back some of the lost money.

Morningstar contacted HAB and its company secretary, City Partnership, for comment.

is content editor for Morningstar.co.uk

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