AFM identifies shortcomings in unlisted property funds for consumers

The Netherlands Authority for the Financial Markets (AFM) has conducted a review of providers of unlisted property investments for consumers. This review has revealed shortcomings, some of which are serious, in the areas of product offering, provision of information, and business operations, which demonstrate that these providers pay insufficient attention to the customer’s interests. The AFM is calling for studies to be undertaken to consider the possible introduction of additional legislation, in order to ensure that all parties that offer unlisted investments to consumers are brought under the supervision of the AFM.

This is stated in the report entitled 'AFM observations on unlisted property funds for consumers'. This report contains the main conclusions of the increased supervision that the AFM has been conducting on this market since 2009, because of the many signals it received, the economic crisis, and increased integrity risks. The findings provide reasons to continue this increased supervision. The AFM’s intention, in issuing this report, is to bring the practices involving due care for consumers by individual providers to a higher and more acceptable level.

On the basis of its findings, the AFM advises consumers to be alert to the potential risks of investing in unlisted property funds. In order to assist them with this task, the AFM has drawn up a checklist. Consumers can only invest wisely in property if they understand what is happening with their money, and recognise the risks and the costs. The market has approximately 60,000 private investors who have invested some 5.5 billion euros.


During the period from 2009 to 2011, the AFM reviewed 46 providers: 12 licence holders and 34 unlicensed providers. The AFM has imposed 67 enforcement measures, including the withdrawal of licences, the removal of directors, the appointment of administrators, the submission of official reports [to the police], the issuing of notices, and the provision of instructions on compliance with standards.

Good practices were also observed, such as providers who put the customer’s interests first. For example, these providers grant consumers a share in the profits, and provide a good balance between risk and return. Generally, the licence holders comply better with the transparency requirements than the non-licence holders.

The AFM has also developed the property risk radar, with which it spotlights funds. The main risks of the property investment of all 30 licence holders in this sector have been identified using a self-assessment. These efforts of the AFM fit into the nation-wide approach on the part of the central government to combat abuse in the property sector, which includes cooperation with de Nederlandsche Bank (DNB) and with the Tax Authority via the Financial Expertise Centre.


The AFM perceives that many property bonds, such as those that are structured in practice, are harmful to consumers, because the risk is disproportionate to the returns offered. For example, bondholders are often fully exposed to the entrepreneurial risk, but receive no appropriate return or profit sharing for undergoing this risk. Moreover, the situation can also involve the issue of weak protection of the bondholder.

The provision of information is often inadequate, especially with offerings that are not under the supervision of the AFM. In many cases, on the website, in the prospectus, and in the financial statements, there is a lack of clear and understandable information about the investment objective, the risks, the return, and the margin of certainty involved. The information provision during the duration is also meagre. Investors receive insufficient information concerning problems in the business operations. The AFM emphasises the importance of an up-to-date and proper valuation of the property portfolio and information provided about this portfolio.

Many funds have little or no grip on one or more aspects of the management, the so-called governance, and the business operations. This includes the corporate and financing structure, the composition of the board, the property and financial expertise of the directors, the integrity, and the degree of compliance with supervision rules.

Investors must be able to rely on the fact that their provider has controlled and ethical business operations, that it possesses sufficient expertise, and that it is professionally competent. Directors must deal properly with the deposited money and not transfer this to other funds, or spend it on other, sometimes private, purposes. They must also make every possible effort to preserve property values and inform investors promptly and accurately.

Spearheads of the supervision

The AFM expects providers to take greater care in the structuring and management of their funds and to act more in the interests of consumers. Following its observations, the AFM will mainly focus it supervision on:

  1. A sound product offering.
  2. Proper information provision at the moment of the presentation of the investment, and in subsequent dealings with the consumer.
  3. Compliance with the prospectus.
  4. Controlled business operations that are resilient against integrity violations and that guarantee compliance with laws and regulations. 
  5. Proper valuation of the property portfolio.
  6. The appointment of expert and ethical directors by the provider.

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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