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Westcott Value
The Scam of Land Banking and Bogus Land For Sale
Building Plots For Sale has discovered that Land Banking has become increasingly popular in recent times. Land Banking is purchasing raw land with the intention of holding onto it until it becomes worth a lot more than what you originally paid for it. Inflation could raise the value of the land for sale but typically it is when permission is gained to develop on the land.
It is normally land parcels that are situated bordering rapidly developing cities that become ideal for land banking. The aim is to buy undeveloped land for sale that will in time increase in value because it is situated in the path of urban growth. What investors aim to do is to identify these parcels of land for sale before any developers and sit back and wait for the value to increase.
The landed gentry or real estate developers initially practiced Land Banking in the UK. Some listed building companies successfully deal in land banking for future building projects. However in 2002 the Land Registration Act was passed, this act allowed companies to buy land for sale and divide it into smaller building plots. These smaller plots are then sold on to individual investors. This practice does not fall under the control of the Financial Services Authority. Some people are wary of this type of investment because of the number of land banking companies that have failed or worse, been closed down. Despite the property boom of 2002 to 2007 there is not one successfully recorded UK based land banking company.
A land banking scheme that is a collective investment scheme is a regulated activity for the purposes of the Financial Services and Markets Act 2000. According to section 19 of this Act it can only be operated in the UK by someone who is authorized or exempt. Section 26 states that an agreement made by a person on contravention of this is unenforceable, any money paid may be recouped along with compensation for any loss suffered. Because the FSA has recently enforced this regulation many companies have now moved outside of the European Union and offer land for sale to non-UK residents because they are not protected by FSA regulations.
The companies that offer this land for sale have formed due to the changes in the Land Registration Act. Normally the land for sale is typically green belt, flood plain, and agricultural or protected land. As such there are no successful planning permission applications for plots sold under collective investment schemes. Under these schemes there have been great losses by the investors and some schemes have been closed down by the FSA and so the companies move to places such as Dubai or Singapore. From there they offer land for sale in the UK and the local authorities there do not regulate such activities. In June 2010 the Monetary Authority of Singapore (MAS) did warn that these schemes could be a scam, specifically those offering land for sale in the UK.
Typically representatives from these companies sell the land by telephone, property shows or in shopping centres in temporary booths. They offer land investment in the UK, which does sound tempting especially when they mention how close the land is to the major cities, the UK prices and other various statistics. It all seems like a great investment, they sell it as having strong potential as developing land. They price the land at the market peak, they show detailed plans, perhaps a housing estate on the site and class them as "pre-approved" or a "concept". They will then discuss the potential future value of the site compared to the price of the land now. The fact that the land may be greenbelt or agricultural is never mentioned and the sale price are typically lifted 10-100 times over the current value of the land. The plans that are shown mean nothing in UK planning law even though the sales person appears optimistic about the planning process. They will never mention that the land cannot be developed on and planning permission will not be granted anytime soon.
Typically the investor then ends up paying a considerable amount of money for a piece of land that is low in value but has a high chance of remaining undeveloped. The land cannot really be sold on because the public becomes aware of the lack of viability of the land. Even worse is that these customers are then put on a list and sold to other companies showing that they are willing to buy these plots of land. When these companies fail the investor experiences further losses.
A BBC Radio 4 documentary "You and Yours" aired in December 2006 criticised land banking companies suggesting that they are making a great investment. Their main selling tactic is that the customer owns the plot therefore cannot lose, the land will only go up in value whilst planning permission is being sought. However typically these plots are sold at sometimes 15 times their value, meaning that the land is really worthless. If the company fails, the buyer cannot sell the land as the cost of the sale exceeds the value of the land itself.
This is the main reason that these companies operate in countries such as Singapore, Malaysia and Canada. Residents are naïve to the UK property market and planning regulations such as green belt.
Some companies that have failed so far are:-
- Land banking firm UKLI was placed into administration in 2008 due to insolvency. However they still took £69million from 4,500 people for building plots. Land International was closed in 2008 after losing its investors £10 million. This company was later offered for sale in Asia. In 2010 Land International (Far East) failed, losing its investors £2.5million.
On 15 January 2009 Land Registry published a warning against Land Banking schemes. Land Registry Head of Corporate Legal Services Mike Westcott Rudd said that the public was being "misled about the prospects of obtaining planning permission". Even on occasions forged Land Registry paperwork was shown to investors suggesting planning approval, even though there was never any.
http://www.buildingplotsforsale.org
About the Author
This article has been written by Miss Fiona Davies. She is Director of Sales at www.buildingplotsforsale.org All articles on the website have been written uniquely by her. She has worked in the land and property business for the last ten years.
Homes For Sale San Juan Island WA $559000 436-SqFt 1-Bdrms on 0.44 Acres