http://en.wikipedia.org/wiki/Land_banking
Land banking is the practice of purchasing raw land with the intent to hold on to it until such a time as it is profitable to sell it on to others for more than was initially paid. Land is popular as an investment as it is a tangible asset as opposed to Shares or Bonds.
The intended increase in value may come from inflation, conversion for use as housing, or potential for extraction of raw materials.
Typically parcels of land desirable for “Land Banking” are those that lie directly in the growth path of rapidly developing cities. The initial goal is to buy undeveloped land that will increase in value because it lies in the path of urban growth. The investment objective is to identify these parcels well in advance of the developers and wait for the value to be realised.
[edit] Land banking by country
[edit] United Kingdom
Land banking in the UK was previously the preserve of the landed gentry or Real estate developers. Many reputable listed commercial building companies engage successfully in land banking for future building projects. This has changed in recent times due to the changes in the Land Registration Act 2002. This act enabled companies to purchase land sites and easily divide them into smaller plots. The company can then offer these plots for sale to individual investors. This relatively new practice in the UK does not fall under the control of the FSA Financial Services Authority. Many people are wary of this form of investment as many Land Banking companies have either failed or been closed down. There are currently no audited successes recorded for plot based land banking despite the UK having gone through a major property boom in the period 2002 - Jul 2007.
A landbanking scheme that is a collective investment scheme is a "regulated activity" for the purposes of the Financial Services and Markets Act 2000 and, according to section 19(1), may only be operated in the UK by a person who is either authorised or exempt. Section 26 provides that an agreement made by a person in contravention of this is unenforceable and any sums paid to him may be recovered together with compensation for any loss suffered. After recent FSA enforcement of this regulation many companies selling UK plots have moved outside of the European Union and only offer land plots to non UK residents who are not protected by FSA regulations.
[edit] Land banking companies in the UK
Since the changes in the land registration act, a number of companies offering land as an investment have been formed. This has led to speculation and exaggeration as to which areas are feasible and likely to be taken forward through planning stages and which may be purchased by a developer at a later date. There have been considerable losses recorded by investors in UK land plots. A large number of companies offering land plots have failed, been shut down by the FSA or other authorities, or moved offshore.
[edit] Sales Methods
Typically, a company representative will contact an individual by telephone, in temporary shopping center booths, or at property shows. Very often Government or industry statistics, the proximity of the land to built up areas, or the recent history of UK house prices are quoted as a demonstration of why the land plot is a great investment. Verbal communication will often indicate that the land is fast tracked for building approval and has strong potential as building land. When pricing the land reference is typically made to approved building land prices at the market peak. No reference is ever made to the price of green belt or agricultural land. Very often the Land Banking company will present detailed plans showing a housing development on the site. These plans are often referred to as "pre approved","concept" or "pre development". Such plans have no validity in law and cannot be considered as any indication of progress in the planning process.
[edit] Controversies
A 'You and Yours' documentary, first aired on BBC Radio 4 on the 14th December 2006, criticized the services offered by many of the UK Land Banking companies, suggesting that they are scamming their customers. This scam is based on the very low chance of any of the plots receiving planning permission, the misleading marketing tactics used by the companies and the very high profit margins taken on the land plots.
A key strategy used for selling UK land plots is to imply that because a customer owns the land plot they cannot lose their money. The land banking company typically suggests dramatic annual increases in the value of the land plots, and a very optimistic time frame for successful planning applications. These are never contractually committed. Typically the land banking company sells a land plot at a premium of 15 to a 100 times the current market value of undeveloped land. A purchaser might pay $15,000 for a land plot that only has a market value today of $500. On this basis the majority of the investment is not in land, and small percentage annual increases in the value of the land plot are meaningless. The actual investment is in a proposed service to deliver valuable approved building land in the future. If that service is never delivered or is not successful the remaining land asset is normally worthless. Should the selling company fail or disappear the plot owner cannot economically sell the plot as the administrative effort and cost of sale typically exceeds the value of the land plot.
Many land banking companies target victims outside of the UK, particularly Canada, Singapore, Brunei and Malaysia as residents of these countries are naive of the UK property market and UK planning regulations such as green belt zoning.
UKLI in the UK was placed into administration on the 22nd April 2008 because it is insolvent despite having taken £69m from 4,500 people for UK land plots.
UK MP David Heath recently requested a debate in the house of commons saying that while Land Banking may not be illegal it is undoubtedly a scam following the offering of 209 plots in the village of Dean.
HM Land Registry issued a press release on the 15th January 2009 advising consumers that the Land Registry has published a guide warning against so-called land banking investment schemes which are often advertised as offering big returns on investments in land. Land Registry Head of Corporate Legal Services Mike Westcott Rudd said: "Members of the public have been misled about the prospects of obtaining planning permission or that planning permission has already been granted. Sometimes they are told well known banks, lenders and established developers are partners in the schemes when this is not the case. In some extreme cases forged Land Registry letters have been produced to suggest that there is official Land Registry planning approval. However, Land Registry plays no part in the planning process."
Many UK authorities and newspapers are now speaking out openly against plot based Land Banking.
[edit] United States
Land banking as an investment, is nothing new to America. Several self-made billionaires started by purchasing large tracts in California where the development opportunities had not yet arisen. People such as Bob Hope and Donald Trump have reaped tremendous reward from buying large areas and holding the property until the market commanded a considerable return when sold. There have however, also been many land scams in the US. (Example: Huge tracts of worthless Florida swampland being sold as suitable for real estate.) Glengarry Glen Ross (film) demonstrates the unethical side of selling land.
Land banking is the practice of purchasing raw land with the intent to hold on to it until such a time as it is profitable to sell it on to others for more than was initially paid. Land is popular as an investment as it is a tangible asset as opposed to Shares or Bonds.
The intended increase in value may come from inflation, conversion for use as housing, or potential for extraction of raw materials.
Typically parcels of land desirable for “Land Banking” are those that lie directly in the growth path of rapidly developing cities. The initial goal is to buy undeveloped land that will increase in value because it lies in the path of urban growth. The investment objective is to identify these parcels well in advance of the developers and wait for the value to be realised.
[edit] Land banking by country
[edit] United Kingdom
Land banking in the UK was previously the preserve of the landed gentry or Real estate developers. Many reputable listed commercial building companies engage successfully in land banking for future building projects. This has changed in recent times due to the changes in the Land Registration Act 2002. This act enabled companies to purchase land sites and easily divide them into smaller plots. The company can then offer these plots for sale to individual investors. This relatively new practice in the UK does not fall under the control of the FSA Financial Services Authority. Many people are wary of this form of investment as many Land Banking companies have either failed or been closed down. There are currently no audited successes recorded for plot based land banking despite the UK having gone through a major property boom in the period 2002 - Jul 2007.
A landbanking scheme that is a collective investment scheme is a "regulated activity" for the purposes of the Financial Services and Markets Act 2000 and, according to section 19(1), may only be operated in the UK by a person who is either authorised or exempt. Section 26 provides that an agreement made by a person in contravention of this is unenforceable and any sums paid to him may be recovered together with compensation for any loss suffered. After recent FSA enforcement of this regulation many companies selling UK plots have moved outside of the European Union and only offer land plots to non UK residents who are not protected by FSA regulations.
[edit] Land banking companies in the UK
Since the changes in the land registration act, a number of companies offering land as an investment have been formed. This has led to speculation and exaggeration as to which areas are feasible and likely to be taken forward through planning stages and which may be purchased by a developer at a later date. There have been considerable losses recorded by investors in UK land plots. A large number of companies offering land plots have failed, been shut down by the FSA or other authorities, or moved offshore.
[edit] Sales Methods
Typically, a company representative will contact an individual by telephone, in temporary shopping center booths, or at property shows. Very often Government or industry statistics, the proximity of the land to built up areas, or the recent history of UK house prices are quoted as a demonstration of why the land plot is a great investment. Verbal communication will often indicate that the land is fast tracked for building approval and has strong potential as building land. When pricing the land reference is typically made to approved building land prices at the market peak. No reference is ever made to the price of green belt or agricultural land. Very often the Land Banking company will present detailed plans showing a housing development on the site. These plans are often referred to as "pre approved","concept" or "pre development". Such plans have no validity in law and cannot be considered as any indication of progress in the planning process.
[edit] Controversies
A 'You and Yours' documentary, first aired on BBC Radio 4 on the 14th December 2006, criticized the services offered by many of the UK Land Banking companies, suggesting that they are scamming their customers. This scam is based on the very low chance of any of the plots receiving planning permission, the misleading marketing tactics used by the companies and the very high profit margins taken on the land plots.
A key strategy used for selling UK land plots is to imply that because a customer owns the land plot they cannot lose their money. The land banking company typically suggests dramatic annual increases in the value of the land plots, and a very optimistic time frame for successful planning applications. These are never contractually committed. Typically the land banking company sells a land plot at a premium of 15 to a 100 times the current market value of undeveloped land. A purchaser might pay $15,000 for a land plot that only has a market value today of $500. On this basis the majority of the investment is not in land, and small percentage annual increases in the value of the land plot are meaningless. The actual investment is in a proposed service to deliver valuable approved building land in the future. If that service is never delivered or is not successful the remaining land asset is normally worthless. Should the selling company fail or disappear the plot owner cannot economically sell the plot as the administrative effort and cost of sale typically exceeds the value of the land plot.
Many land banking companies target victims outside of the UK, particularly Canada, Singapore, Brunei and Malaysia as residents of these countries are naive of the UK property market and UK planning regulations such as green belt zoning.
UKLI in the UK was placed into administration on the 22nd April 2008 because it is insolvent despite having taken £69m from 4,500 people for UK land plots.
UK MP David Heath recently requested a debate in the house of commons saying that while Land Banking may not be illegal it is undoubtedly a scam following the offering of 209 plots in the village of Dean.
HM Land Registry issued a press release on the 15th January 2009 advising consumers that the Land Registry has published a guide warning against so-called land banking investment schemes which are often advertised as offering big returns on investments in land. Land Registry Head of Corporate Legal Services Mike Westcott Rudd said: "Members of the public have been misled about the prospects of obtaining planning permission or that planning permission has already been granted. Sometimes they are told well known banks, lenders and established developers are partners in the schemes when this is not the case. In some extreme cases forged Land Registry letters have been produced to suggest that there is official Land Registry planning approval. However, Land Registry plays no part in the planning process."
Many UK authorities and newspapers are now speaking out openly against plot based Land Banking.
[edit] United States
Land banking as an investment, is nothing new to America. Several self-made billionaires started by purchasing large tracts in California where the development opportunities had not yet arisen. People such as Bob Hope and Donald Trump have reaped tremendous reward from buying large areas and holding the property until the market commanded a considerable return when sold. There have however, also been many land scams in the US. (Example: Huge tracts of worthless Florida swampland being sold as suitable for real estate.) Glengarry Glen Ross (film) demonstrates the unethical side of selling land.
told that i will consider but already suspect it's another variety of scams so prevalent.
