Financial advisers are being warned of the pitfalls of investing their clients' money in property overseas.
The warning comes from industry experts, including Paul Owen of the Association of International Property Investors (AIPP), who say more and more advisers will be asked for advice in this specialist sector in the coming years.
Cases of bad practice in recent months have enticed the issue of overseas property regulation – virtually non-existent in some nations – out into the open.
The warning forms part of the International Property Investment (IPI) Report 2007, which was put together by a panel of industry experts which, along with Paul Owen, also included Mark Roberts, head of financial regulation at the ifs School of Finance.
The panel identified seven key areas of concern from issues raised by purchasers, industry professionals and the media.
The group reviewed evidence of bad practice and considered whether regulation is required to monitor the industry.
They suggested investing in overseas property would be safer for UK consumers if the following were set up:
- Financial guarantees: More careful and precise language is required in the promotion of properties. The word ‘guarantee’ is unrealistic and should not be used when the claim is not substantiated.
- Transparency: There is an urgent need to educate the public about the buying process. Promotional tactics and strategies need to be reviewed and guidelines on buying overseas properties given to all potential purchasers.
- Payment terms: The scarce use of terms and conditions is unacceptable. Contracts between agents and developers and financial advisers must be in place. ‘Best practice’ standards are encouraged.
- Commissions: The payment of commissions and the role of each party must be clearly communicated to the buyer. Agents need to make it clear if they are representing a developer as opposed to being ‘independent’ and sourcing the best property investment available.
- Consumer protection: Consumer protection is a joint responsibility of both the consumer and the industry. A ‘due diligence’ awareness campaign should be driven by trade bodies.
- IFA Protection: Best advice guidance and educational packs should be made available to financial advisers and roles within the purchase process be clarified to explain their boundaries.
- Legislation: The industry would be better served by tough self-regulation based on the core principles of providing independent legal advice, transparency, non-misleading communications and professional business standards.
The group felt the industry would be best served through tough self-regulation and called for a code of ethics and standards to be adopted by trade bodies, their members and the industry as a whole.
Siobhan McAfee, show manager of the International Property Investment pavilion, organised by Clarion Events, says: “In the past three years, the international property market has become an increasingly attractive investment vehicle.
“This trend looks set to continue with research indicating that 35% of IFAs will be giving overseas property advice within the next three years.
“However, some financial advisers are telling us they are uneasy about overseas property investments.”
The findings of the IPI report will be discussed and analysed in a live forum by key panel members during the IPI pavilion at Earls Court London on 14-15 November 2007. To attend click here.
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