SFO warns investors of inflated property valuations

8 July 2011

The Serious Fraud Office (SFO) has today issued a warning to investors to be wary of inflated property valuations when considering whether to invest in either properties or companies which had significant property development portfolios.

The warning follows a number of SFO investigations into cases where property values had been significantly overstated to the detriment of persons investing either directly in the over-valued property or indirectly in companies owning property portfolios.

SFO Chief Executive, Adam Feeley, said “In recent weeks we have concluded investigations involving property valuations where we have been disappointed to see investors making bad investment decisions based on information which can only, at best, be described as optimistic values. It is imperative that investors are made aware of the underlying assumptions on which the valuations are based.”

The SFO said that in most cases investigated, the valuations had been commissioned by the owner of the property, or property-related company, who had an obvious financial incentive to inflate valuations beyond what was commercially realistic.

In some cases, the valuations were at the margin of what could be regarded as professionally justifiable, while in a few extreme cases, properties had been valued 500% over their market value.

“Where there is a clear intention to deceive an investor with false information, the SFO will lay criminal charges against all parties to that offence, including any valuer who is knowingly a party to the deceit,” Mr Feeley said, “however in many instances the valuations fall short of what is required to meet a criminal standard of proof for fraud.”

Mr Feeley said that the best protection for persons investing in property was to commission their own valuations, but the SFO recognised that this was not always feasible.

“An important part of our role is to identify alternative forms of redress where the conduct complained of does not meet the criminal standard of proof.”

Mr Feeley said that the SFO was making referrals to the Valuers Registration Board in respect to some transactions, and that further matters were under SFO consideration.

“There are a small number of valuers who are undermining confidence in a profession which is an important adjunct to investment decisions, and we are determined to work closely with the valuation profession to ensure rogue valuers are not tolerated.”

He said that the SFO had no doubt that the New Zealand Institute of Professional Valuers was equally committed to addressing dealing with instances of valuers failing to meet professional standards.

“The SFO acknowledges that the cases we deal with are exception, and we know that valuers generally operate to very high professional standards. Nonetheless, the impact of these few individuals has had a disproportionate impact on the investment market.”

The SFO noted that investors wishing to obtain advice on property valuations can contact the NZ Institute of Valuers for further information.

ENDS

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