The Advertising Standards Authority has banned an advertisement for a new development in London after complaints over claims about the yields possible on the property.
The authority’s justification for the ban raises questions over how agents selling new properties in particular can accurately measure potential rental values for investors buying units to let out.
The controversy surrounded the respected property consultancy CBRE which marketed the One Crown Place development in London EC2 on its own website in October last year, using a factsheet giving details of investment potential.
In a section headed ‘Key facts and services’ the consultancy listed estimated rental values and estimated yields for different property types.
However a complainant - not named by the ASA - did not believe the estimated average gross yields were representative of the market within the local postcode area, and challenged whether those claims were misleading and could be substantiated.
There was also concern by the complainant about whether the ad breached advertising codes because the basis for calculating the estimated average gross yield had not been made clear.
During the ASA investigation, CBRE said it stood by the rental values quoted on its website, stating it had researched local markets including The Heron building, a similar tower in the same part of London.
CBRE also cited reports from Rightmove and LonRes, the London residential market data firm, as guides it had consulted before making its rental value claims for One Crown Place.
In its assessment following the investigation, the ASA said it accepted that most prospective buyers would accept that estimated values would be subject to fluctuations.
However, the authority said: “Notwithstanding that, we considered consumers were likely to understand that the figures quoted under the ‘Estimated rental value’ columns in the ad were the potential rental prices that could be achieved through letting out the properties after purchase. The percentages quoted in the ‘Estimated average gross yields’ likewise represented the possible annual return from letting out the properties. Because the ad did not include information to explain the basis of the quoted ERVs and average gross yield figures, and how those were calculated, we considered that consumers would expect that the estimations of those figures were based on the most recently achieved rental prices for comparable properties within the local EC2 postcode area.”
The ASA said the LonRes data applied to the Heron building and therefore it understood the data was not exactly comparable, however: “According to the LonRes reports, the actual rent achieved for one-bedroom properties in The Heron between June 2016 and December 2017 ranged from £700 to £750 per week, whereas the ERVs quoted in the ad for one-bedroom properties were ‘£745 - £925’ per week.
The reports indicated that the actual rent achieved for two-bedroom properties in The Heron between June 2016 and August 2017 ranged from £1,100 to £2,150 per week, whereas the ERVs quoted in the ad for two bedroom properties were ‘£1,115 - £1,335’ per week. The reports also indicated that the actual rent achieved for three-bedroom properties in The Heron between March to December 2016 ranged from £2,095 to £2,308 per week, whereas the ERVs quoted in the ad for three-bedroom properties were ‘£1,750 to £2,500’ per week.”
The ASA also noted that some properties contributing to the Rightmove figures consulted by CBRE were not in The Heron and that there were significant differences in the property types included in the Rightmove data compared to those available at One Crown Place.
The ASA continued: “CBRE did not provide any information about the value of the properties used as comparison for the estimated figures, or any explanation on how they determined or calculated the quoted ERVs and average gross yields based on the data in the evidence. Because of that and the evidence indicating actual rental prices achieved only related properties within one residential tower, and also because there was no information about why the properties in the Rightmove reports that were not situated in The Heron were comparable, we considered that the body of evidence submitted by CBRE did not adequately demonstrate that the quoted ERVs and therefore average gross yield figures were representative of the rental prices and gross yields of comparable properties within the local postcode area. We concluded that the ad was likely to mislead.”
The ASA has now told CBRE to ensure that similar ads in the future do not quote estimated rental values and average gross yields from letting properties, unless the company has “adequate evidence to substantiate the claims.”
It has also told CBRE to ensure that the basis used to calculate the estimated rental values and average gross yields is made clear in future ads.