The Advertising Standards Authority (ASA) has upheld a complaint made against a property sales business.
An email from London-based Newbuild Sales received on 11 October 2015 included text which stated “I have a fantastic development in London E14, that’s only 10 minutes walk from East India DLR and within walking distance of Canning Town Underground Station. Scheduled for completion Q2 2017 (at the earliest), investors will benefit in free capital growth over the next 18 months and can STILL be involved in property investment without any additional costs!! So don’t sit back and watch property prices increase… prices in this area are expected to increase 5-10+% at a minimum over the next 18 months and have already done so in the past, and therefore equates to 50% 100% return on actual investment. Don’t miss out and call us now to find out more on how we can help you with your investments and help improve your lifestyle and even plan for your pension and children’s future”.
The complainant, who believed it implied a guaranteed price increase, challenged whether the claim “So don’t sit back and watch property prices increase… prices in this area are expected to increase 5-10+% at a minimum over the next 18 months and have already done so in the past, and therefore equates to 50% – 100% return on actual investment” was misleading.
Newbuild Sales Ltd said it did not believe that the ad implied a guaranteed price increase and said it did not make reference to a guarantee. They said the claim “prices in this area are expected to increase 5-10+% at a minimum over the next 18 months” was based on information from an online regional newspaper article. They said it was the case that prices had risen by that percentage in the past and referred to another online article. They said that the claim “equates to 50% 100% return on actual investment” was based on putting a 10% deposit down on the purchase price and not having to pay anything further until completion two years after that.
One of their business models involved investors selling their contracts six months prior to completion when values had increased. Using a conservative estimate of a 5% increase per year, a unit which had initially cost £430,000 would be worth £462,787 after 18 months. A capital appreciation of £32,787 would provide a 76% return on the initial investment. Using a 10% rise in value over the same period would lead to a 155% return on investment.
The ASA considered that the ad implied that it was highly likely that the value of the advertised properties would increase by at least 5–10% over the next 18 months, and that investors would therefore make a return of 50-100% on the sum invested. Newbuild Sales had referred to two online newspaper articles in support of the claims in the ad. One post-dated the ad and we therefore did not take it into account. The other dated from May 2014 and reported that the average house price in Tower Hamlets had increased by 43% from May 2013 to May 2014. However, the ASA did not consider that previous average price increases across the borough as a whole substantiated that the value of the advertised properties were highly likely to increase by at least 5-10% over the next 18 months.
The CAP Code also stated that ads should make clear that past performance does not necessarily give a guide for the future, and in this case the ASA did not consider that was made clear. The ad watchdog also considered that the ad did not make clear that the value of investments was variable and could go down as well as up. The Code also required that the basis used to calculate any rate of interest, forecast or projection must be apparent immediately. The ad referred to a “50%-100% return on actual investment”, but did not make clear how this was calculated, which the ASA considered was material information. The ASA therefore concluded that the ad was misleading and breached the CAP Code (Edition 12) rules 3.1 and 3.3 (Misleading advertising) and 14.3, 14.4 and 14.5 (Financial products).
The firm was told that the ad must not appear again in the form complained of. The ASA told Newbuild Sales not to repeat the claim “So don’t sit back and watch property prices increase… prices in this area are expected to increase 5-10+% at a minimum over the next 18 months and have already done so in the past, and therefore equates to 50%-100% return on actual investment”. The ASA also told them to: ensure that when making forecasts for returns on investment the basis of the calculation was made clear; make clear that the value of such investments was variable and could go down as well as up; and when quoting past performance to make clear that was not necessarily a guide for the future.
