SFO warns property investors of inflated valuations

Property investors have been warned 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 comes from the Serious Fraud Office (SFO) which said it had made a number of 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.

"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," said SFO chief Adam Feeley.

"It is imperative that investors are made aware of the underlying assumptions on which valuations are based."

The SFO said in most cases it had 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 professional 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 of the deceit," Feeley said.

"However in many instances the valuations fall short of what is required to meet a criminal standard of proof of fraud."

Feeley said the best protection for people looking to invest in property was to commission their own valuations and 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 is 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."

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