Asian investors in the UK and European commercial property market may be receiving conflicted advice about the assets they are acquiring, according to property and construction consultancy Tuffin Ferraby Taylor.
Overseas investment in UK commercial property now accounts for over 40% of overall investment, with €36bn (£25.4bn) invested in 2013. China alone was the UK’s third biggest investor in the same year.
Technical due diligence - the process of research, analysis and discovery in which a potential buyer appoints a building surveyor to gather information about the condition, physical characteristics, installations, site and surroundings of an asset - is a central part of the investor’s decision-making process.
Using this key information, investors are able to make an assessment of whether any defects will impact on short, medium or long-term investment performance. They are also able to use the assessment of risk to strengthen their negotiation position.
Yet, evidence reported by TFT suggests that this advice has the potential to be ‘tweaked’ by advisors working on the deal itself. The very real potential for conflicted advice creeps in when the same firm is both advising on the deal and also on technical due diligence.
Paul Spaven, partner, Tuffin Ferraby Taylor, commented: “Investors deserve independent advice separate from teams - quite understandably - whose principal focus is getting a deal over the line. The reputation of the surveying profession depends on it. We want all those who invest in European real estate - and particularly those who are not from home markets - to benefit from independent and unconflicted advice.
“I am fully aware that this topic is almost a taboo in the industry - true independence has become harder and harder as the sector has consolidated. But we fully support the current RICS investigation into conflicts of interest in the property sector and look forward to sharing our considerable insight in this area with our regulatory body.”
The property and construction consultancy’s comments come just months after RICS announced a new consultation process offering a renewed focus on industry standards with a view to developing new conflict of interest guidelines for chartered surveyors. According to Antony Townsend, chair of RICS UK and Ireland Regulatory Board, the consultation will “capture the view of our members, member firms and consumers to gauge the issues facing the profession and clients.
“Market feedback and insight are vital to ensuring that the final standard is relevant, fit for purpose and continues to set the benchmark for fairness and quality in the property sector.
Industry leaders have formed the national advisory working group to undertake the consultation which opened with a public survey on the issues relating to conflict of interest and applying ethical guidance in October. The group, chaired by independent solicitor Will Glassey, partner at Mayer Brown, will continue with the rigorous consultation process throughout 2015 and 2016 with the review being published, recommendations being implemented and new industry standards being brought to market in early 2017.
Other group participants include RICS staff, the SME sector and CEOs from some of the UK’s largest companies, such as Deloitte, Lothbury Investment Management and Countrywide Surveyors. Will Glassey, commented: “We are taking a major step forward in tightening up the regulatory framework surrounding the commercial property market. It is essential that professional bodies change with the times and regularly review and revise the standards under which they operate.”
