Land banking
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Land banking is the practice of purchasing land with the intent to hold on to it until such a time as it is highly profitable to sell it on to others for substantially more than was initially paid. Land is becoming increasingly popular as an investment due to the benefit of its being a tangible asset as opposed to Shares or Bonds. This type of investment has gained such popularity it is now possible to land bank worldwide and there are several firms set up to offer opportunities to do so.
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 key is to identify these parcels well in advance of the developers and wait for their values to mature. With diligent research, financing and managing of a land banked property, one can realize a handsome profit upon the sale.
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[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. This has changed in recent times due to the changes in the Land Registration Act 2002. This act entitled companies to purchase sites and divide them into smaller plots. The company can then offer these plots for sale to investors looking to diversify their portfolio and lower their risk in investing. This relatively new practice in the UK does not fall under the purview by the FSA Financial Services Authority, so many people are wary of this form of investment as it is currently untested as the lead time for returns is measured in several years.
However, 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 carried on 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.
[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. The size, location, quality and price they charge vary greatly between companies. This has led to a lot of speculation 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.
[edit] United States
The idea of using land as an investment came to the forefront in the USA. Several self-made millionaires started by purchasing large tracts in California where the development opportunities had not yet arisen. People such as Bob Hope and Donald Trump are infamous for purchasing large areas that made them a considerable return when sold.
[edit] Controversies
A 'You and Yours' documentary, first aired on BBC Radio 4 on the 14th December 2006, criticized the services offering by many of the Land Banking companies, instead suggesting that they are scamming their customers. This scam is based on the very low chance of many of the plots receiving planning position, and the misleading marketing tactics used by many of these companies. A key tactic used is suggesting that because a customer owns the land they can't lose. Typically the land banking company sells at a premium of 15 to a 100 times the real value so a purchaser might pay $15,000 for an asset that only really has a true value of $500. Many of these companies target victims outside the UK, particularly Australia, Singapore, Brunei and Malaysia as they are naive of the UK property market and planning regulations such as green belt zoning.
A 'Money Box' programme, first aired on BBC Radio 4 on the 7th June 2008, reported that the Financial Services Authority has asked the High Court to wind up an illegal land banking scheme, run by UK Land Investments (UKLI), that has taken £69m from 4,500 people. UKLI was placed into administration on the 22nd April 2008 because it is insolvent.
