Davidoff Kleeberg & Maresch 240 Station Road Edgware Road Middlesex HA8 7AU Number of complaints: 1

Date: 15 October 2008 Media: Magazine Sector: Property

Ad
A magazine ad for a real estate agency in Poland had the headline "LAST YEAR CAPITAL VALUES ROSE IN WARSAW AND KRAKOW BY 30%". Further text stated "INVEST IN AN OFF-PLAN APARTMENT IN POLAND AND MAKE 300% CAPITAL GROWTH IN 1 YEAR. COST OF APARTMENT FROM £60,000 DEPOSIT FROM £6,000. NOTHING MORE TO PAY UNTIL THE BUILDING IS COMPLETED ESTIMATED BETWEEN FEBRUARY-APRIL 2010. ASSUMING A 30% CAPITAL GROWTH IN FIRST YEAR APARTMENT VALUE = £78,000 PROFIT = £18,000 CASH TO CASH YIELD ON 300% IN 1 YEAR. WE CAN ARRANGE A MORTGAGE FOR YOU SHOULD YOU WISH TO HOLD THE INVESTMENT ON A LONG TERM BASIS. NO DEPOSIT? - NO PROBLEM! We can solve even that problem for you as well - just talk to our advisers and see how it can be done". Small text at the bottom of the ad stated "Property prices can rise or fall off and no guarantee is given or implied with regard to actual returns on investments made".

Issue
1. John Barnett, former Chairman of the Royal Institution of Chartered Surveyors Auction Skills Panel, challenged whether the ad misleading exaggerated the profit that investors were likely to make.

2. The ASA challenged whether the ad made it clear that past performance or experience was not necessarily a guide for future profits.

The CAP Code:

3.1;7.1;53.5;53.6

Response
1. Davidoff Kleeberg & Maresch (DKM) submitted a report from Savills, which they said showed that in 2006 the Polish market moved between 25% and 40%, and that in 2007 the market moved a further 40%. DKM argued that the claim that "last year capital values rose in Warsaw and Krakow by 30%" was therefore conservative. They also submitted a report from Property Secrets, which showed that between 2004-2007 average prices in some Polish property markets experienced between 50% and 100% growth.

DKM said the ad did not misleadingly exaggerate the profit that investors could make. They explained that, when the market moved 40%, the investor would make a profit of 400% because their investment was geared at a ratio of 1 to 10. That was because the investor had put down a deposit of 10% but the value of 100% of the apartment had increased. DKM submitted copies of contracts for the purchase and subsequent resale of one apartment in Warsaw. They said the contracts showed that in eight months the investor had made 353% cash-to-cash profits.

2. DKM pointed out that small print at the bottom of the ad stated that prices could rise or fall, and that no guarantee was given or implied with regard to actual returns on investments made.

Assessment
1. Upheld
The ASA noted the Savills report submitted by DKM. We acknowledged that the report discussed property trends in several EEC countries, including Poland, but we considered that that report in itself did not prove that investors would make the profits claimed in the ad. We also acknowledged that the Property Secrets report submitted by DKM stated that main Polish property markets experienced between 50% and 100% growth in the period 2004-2007. However, we noted that that report did not contain figures for the first part of 2008, and we considered that past performance was not necessarily a reliable guide for future profits. We also considered that the report did not demonstrate that investors in general, or DKM's investors in particular, had made 300% profit in one year.

We also noted DKM's explanation of the basis on which the profits were calculated. We understood, however, that in calculating the profit made on an investor's deposit, DKM had not taken into account the amount of the original deposit paid by the investor, any mortgage payments made during the investment period, and other deductions such as legal or brokers' fees.

We noted the contracts provided by DKM. However, we considered that one contract alone was unlikely to be representative of past or future performance, and was therefore insufficient to support the unconditional claims, "INVEST IN AN OFF-PLAN APARTMENT IN POLAND AND MAKE 300% CAPITAL GROWTH IN 1 YEAR" and "CASH TO CASH YIELD OF 300% IN 1 YEAR", which we considered strongly implied that all investors would make that level of profit. Because we had not seen sufficient evidence that demonstrated that investors would achieve 300% capital growth in one year, we concluded that the ad exaggerated the profit that investors were likely to make.

On this point the ad breached CAP Code clauses 3.1 (Substantiation), 7.1 (Truthfulness) and 53.5 and 53.6 (Financial products).

2. Upheld
We noted the small print at the bottom of the ad. However, we considered that that disclaimer contradicted the unconditional claims made in the body copy of the ad. We also considered that the ad should have stated clearly that past performance or experience was not necessarily a guide for future profits. Because it did not we concluded that the ad was misleading.

On this point the ad breached CAP Code clauses 7.1 (Truthfulness) and 53.5 and 53.6 (Financial products).

Action
The ad must not appear again in its current form.

Adjudication of the ASA Council (Non-broadcast)