Property ad banned after suggesting guaranteed capital gain

The Advertising Standards Authority has banned an advertisement from a property company selling new homes in East London, after it was found to have implied a very strong chance that a buyer would receive substantial capital appreciation.

A complaint was submitted to the ASA by the recipient of an email from Newbuild Sales. 

The email, sent 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 told the ASA that iy did not believe the ad implied a guaranteed price increase and said it did not make reference to a guarantee. 

The firm said that 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, and it said it was the case that prices had risen by that percentage in the past. 

It said that the claim “equates to 50% ­- 100% return on actual investment” was based on putting a 10 per cent deposit down on the purchase price and not having to pay anything further until completion two years after that. 

One of its business models involved investors selling their contracts six months prior to completion when values had increased. It told the ASA that using a conservative estimate of a five per cent 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 per cent return on the initial investment. Using a 10 per cent rise in value over the same period would lead to a 155 per cent return on investment.

However, the ASA says it considered that the ad implied that it was highly likely that the value of the advertised properties would increase by at least five to 10 per cent over the next 18 months, and that investors would therefore make a return of 50 to 100 per cent on the sum invested. 

“We 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 five to 10 per cent over the next 18 months” says a spokesman for the authority, which has a code stating that ads should make clear that past performance does not necessarily give a guide for the future. 

“In this case we did not consider that was made clear. We 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” he says.

The ASA concluded that the ad must not appear again in the form complained of. 

“We 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’” says the authority spokesman. 

“We 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.”