New rules this year for advertisements touting investments

Singapore

BEFORE the year is over, advertisements on investments in financial instruments and properties will face more stringent rules, as new guidelines by the Advertising Standards Authority of Singapore (ASAS) kick in, the advisory council said on Monday.

The council, together with the media owners that make up its members, is working with the Monetary Authority of Singapore and the Council for Estate Agencies (CEA) to improve the current advertising code in these areas.

"Proposed enhancements include raising the standards of disclosure and strengthening measures to deal with advertisers who repeatedly place misleading advertisements," said Tan Sze Wee, chairman of ASAS.

The move will help the public better understand the risks of the investments, and will also protect them from recalcitrant advertisers, he pointed out.

These financial instruments refer to any product that is expected to generate future profits or benefits for the consumer upon purchase. These include securities, forex trading, insurance policies, real estate and even agricultural and aqua-cultural programmes.

ASAS is an advisory council to the Consumers Association of Singapore (Case). On Monday, the consumer watchdog also issued a warning on investing in foreign properties, given the recent proliferation of such advertisements here.

"Such advertisements often make positive claims about the investment value of the properties and the potential returns, but seldom clearly disclose the risks and the legal and regulatory framework involved in foreign markets, which are very different to Singapore," Case president Lim Biow Chuan said.

"We strongly urge the relevant authorities to review existing legislation to ensure that developers who sell their foreign properties locally abide by the same minimum standards in information disclosure that local developers have to meet," added Mr Lim.

Currently, there is a list of mandatory particulars that has to be included in any advertisement put up for a local housing project. These details include the tenure of the land and its encumbrances, the expected completion date of the project, the expected date when the legal title of the units will be transferred to the buyers, etc. It applies to print advertisements and showflat signages, said Lee Liat Yeang, real estate lawyer at Rodyk & Davidson.

Advertisements for foreign properties, on the other hand, are not governed by any legislation here. Case is thus proposing that developers selling foreign properties here provide fact sheets which include, among other things, information on the financial standing of the developer, the developer's and investor's respective obligations, as well as proper valuations of the properties.

Mr Lee welcomes the proposal. He noted that investors in foreign properties have burgeoned beyond the once-limited circle of sophisticated investors, ever since onerous taxes such as an additional 7 per cent buyer's stamp duty on Singaporeans buying a second home came into effect.

"Many Singaporeans still believe in real estate, so they succumb very easily to buying properties overseas if they are not familiar with equities or bonds. They also tend to trust foreign developers selling properties in Singapore under the auspices of well-known real estate agencies."

Doris Tan, head of international residential property services, JLL Singapore, said that most of the developers the agency works with are either publicly listed companies or those with good financial standing, so compliance with Case's criteria will not be difficult, although the stricter disclosures are likely to make it tougher for JLL to market overseas properties in Singapore.

Others like Savills and CBRE don't believe they will be impacted much. They currently do not inform buyers of developers' financial stability, but said this would not be difficult information for them to obtain, given their developer clientele profile.

Sarah Nicholson, CBRE's director of international project marketing, Asia, said her agency already complies with CEA guidelines, which are quite in line with Case's proposed criteria. Besides in-depth due diligence done for both public and private developer firms, CBRE also already provides guide pricing on developments.

"I usually tell my customers that if an investment seems too good to be true, it normally is. Buyers should be cautious of investment opportunities that over-promise, as they are likely to under-deliver," she added.

Ching Chiat Kwong, executive chairman and CEO of Oxley Holdings, said the company puts detailed developer and development information on its website. But he does not think it likely that developers will freely offer up information about their financial standing to buyers, "which should be a job done by credit rating agencies", he pointed out.

As for providing property valuations, he simply said: "The price we advertise at is the market value."

Oxley is currently marketing two mixed developments - in Cambodia and London - both here and overseas.

In the past two years, Case has received 13 complaints from buyers of foreign properties, most of whom said they failed to get the high rental yields or capital growth that had been promised to them. Some did not even get updates on their investments and lost contact with the property investment firm; a number ended up losing more than S$100,000.

"Investing in an unfamiliar foreign market holds high risks, such as foreign currency fluctuations, property market trends, sovereign risks and interest rate risks. Some of these deals have turned sour when prices declined sharply ... There are also reported cases where the developer of foreign properties became insolvent and was unable to continue with the development," Case noted.

The infamous example here is that of EcoHouse, the Brazilian social housing developer that dangled annual yields of 20 per cent, collected more than S$65 million from Singapore investors and then left them largely unpaid. EcoHouse shuttered its Singapore office last August, and later suspended its global operations and filed for a voluntary winding-up. It was also found to have no links with the Brazilian government's social housing scheme.