Tuesday, May 5, 2015

CASE urges review of foreign property ads

Ng Jing Yng

Matthias Tay

May 4, 2015

SINGAPORE — Some were lured into buying an overseas property with promises of high returns but have since lost contact with the property investment company. One buyer had believed that his property was sited in a prime area but found out later this was not true.

In the light of some consumers losing more than S$100,000, the Consumers Association of Singapore (CASE) is urging the authorities to review how foreign property developers disclose information to buyers, particularly in advertisements.

At the same time, the Advertising Standards Authority of Singapore (ASAS) has announced that by year end, it will implement new guidelines for advertisements pertaining to investments in financial instruments and property, including foreign properties.

CASE has received 13 complaints — seven last year and six in 2013 — from consumers regarding their purchases of foreign properties in Malaysia, the Philippines, India, New Zealand and Canada. A similar number of complaints were made in previous years.

“(Foreign developers) should commit to truthful and honest claims and not make misleading or false representations to investors in order to sell their properties,” said CASE president Lim Biow Chuan, who noted a “recent proliferation” of adverts for foreign property.

“Such advertisements often make positive claims about the investment value of properties and the potential returns, but they seldom clearly disclose the risks and the legal and regulatory framework involved in foreign markets which are very different to Singapore.”
In a media release today (May 4), CASE suggested that developers selling foreign properties here should provide informative fact sheets to investors to include the developer’s financial standing and a proper valuation of the property, among other things.

ASAS, an advisory council of CASE, is now working with the Monetary Authority of Singapore, the Council for Estate Agencies and the industry to improve the Advertising Code with regard to investments, so as to better protect members of the public.

There was growing public concern over claims made last year by property and financial advertisers, including those in insurance, ASAS chairman Tan Sze Wee told TODAY. Misleading claims and a lack of clarity in disclaimers were some of the concern areas.

Enhancements are thus being proposed to improve information disclosure, which may hold foreign and local developers to the same minimum standards, and to strengthen measures for dealing with those who place misleading adverts repeatedly.

This is not the first time overseas property purchases have come under the spotlight.

In March last year, the Council for Estate Agencies (CEA) published an online guide to help consumers with their overseas investments. Practice guidelines for estate agents who market foreign properties were also issued that month.

While the CEA has regulatory oversight of these agents, it is more difficult to seek redress against foreign developers.

Today, CASE pointed out the tandem increase in overseas property purchases made by Singaporeans and the “large number” of such properties being advertised and marketed here.

“Some of these deals have turned sour when prices declined sharply resulting in investors losing a large sum of their money,” it stated.

“There are also reported cases where the developer ... became insolvent and was unable to continue with the development, resulting in a total loss of the investment.”

The consumer watchdog, which cited a recent warning by Maybank analysts about the glut of homes in Malaysia’s Iskandar region as a reminder of the potential risks, cautioned investors to avoid committing to a purchase based on adverts that promise high yields without doing the necessary homework.

Foreign developers whom TODAY contacted did not respond by press time. Some buyers of foreign properties, however, agreed on the need for both clearer advertisements and doing one’s research before buying a property.

One foreign property owner, who wanted to be known only as Mr Lim, suggested that advertisers could be mandated to specify, for instance, which catalogues have interior designs that are not included in the actual property.

The 42-year-old also felt that property developers can be clearer in the type of technology used to construct the property and provide information up front on tax laws in the foreign country.

[Here are things you should (already) know in general:

1) Arbitrage equalises all prices. Therefore, when something is cheap, there is usually a reason for it. If someone sells you a $1m diamond (real!) for $20, would you buy it? If you say no, why? If you say yes, also why?

2) Advertisements are marketing instruments. Advertisers are trying to get you to buy whatever they are selling. Do you think they will tell you the truth, the whole truth and nothing but the truth? At which point did they take the oath?

3) Full time investors are scouring the world for safe, reliable, dependable, and low-risk investments. By the time they are done, do you think you as a part-time investor will still have a "ground floor entry into an investment opportunity of a lifetime"? To be sure, investment requires an optimistic mindset. But there is a difference between optimistic and naive.

4) Good investment sell themselves. This is actually repeating point #3. And is related to #2. If an investment is good, it will sell without need for advertisements. You need marketing agents and advertisement to sell "investments" that are not selling. Think about the local property market. When the market was hot, agents did not have to work very hard to get business. Clients will come to them. However, when the market cooled, they had to work hard to get customers. And the good property goes first. Then they have to market the less desirable ones.

Specific to overseas development or property, you should think about these:

a) Foreign is not Singapore. This seems obvious but here are some transplanted assumptions: Capital appreciation is guaranteed; easy rental market (easy to rent, to find renters); same rules/laws as Singapore; same respect for the rule of law; and same competence and follow-through.

b) Exchange rates. This adds another variable to the equation.

c) Ownership/leasehold rules for foreigners. People criticise HDB flats for being "99-year rentals" (because of the 99 year leasehold). Yet how many of the same critics might be buying Indonesian properties that are on 30 year lease? Hopefully, they are consistent and did not. But I won't be surprised. The Funtasy Island development in the news recently is on a island leased to the developer (by the Indonesian government) for 30 years, extendable for another 20, and then renewable thereafter. The Indonesian partner undertakes to pay the lease renewable up to 2112. That's nice. Always good to know that the seller is committed to almost 100 years of servicing their customer. I'm sure NOTHING can go wrong in 100 years. 

d) Access to courts and legal redress in case something goes wrong. 

CASE is trying to protect "investors" in foreign markets by regulating their advertisements in Singapore. This is commendable, but is it best? Singaporeans are probably one of the most naive people in the world, because we are very protected and safe in Singapore. The rest of the world is not so safe. Caveat Emptor. The solution isn't to protect Singaporeans more, but to educate Singaporeans more. ]

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