With turmoil ravaging the North American real estate market, the BC Securities Commission and the Alberta Securities Commission are warning investors to do their homework before investing in real estate-based securities being offering by private companies.
Sellers of such securities are in what the commissions define as an exempt market. That means private sellers are not required to provide the same disclosure as public companies. This can include common public disclosures like audited financial statements and material change reports.
"Investors need to remember that these types of investments are often risky and high returns are not guaranteed," said Brenda Leong, BCSC's executive director.
The exempt market generally includes the sale of securities to investors without a prospectus and the advice of a registered dealer. Some securities are sold under an offering memorandum exemption, which provides varying levels of information about an investment. Unlike prospectuses, they're not subject to review by securities regulators.
The commissions advise potential investors to do their homework and ensure the investment is in line with one's risk tolerance and investment goals and to seek independent advice from a lawyer or financial adviser.
Said Leong: "The securities are not listed on any stock exchange, which means your ability to resell them to liquidate your investment is extremely limited, if not impossible."
More information can be found at the BCSC's www.investright.org investor education website.