Land Banking - Do You Know What You're Really Getting Into?

Recently, many investors have sought our views on "land banking".

Many of them have received invitations by land banking marketing companies to go for sales presentations in fancy offices and they are not so sure about what they hear.

Big On Space is not affiliated with any land banking company out there.

We do not market or represent any land banking company. Our views here on "land banking" are based on our own research & experience, as well as interaction with land bankers and their associates from time to time.

Here is our comment on Land Banking.

Don't be confused with the type of "land banking" that Mr Donald Trump does.

Even in Singapore, when property developers "land bank", they buy land that already have some form of development potential and approval. Not agricultural reserve land with no planning permission like what these landbanking companies are promoting.

The type of land banking deal that is being offered by Land Banking companies has the following features:

• A plot of land somewhere out there that will be divided into several smaller plots for sale to individual small investors...
• Does not have planning permission for development yet...
• Promises to be a potential "strategic investment" because of some story (eg UK population growth)...
• Promises an investment return of over 100%... infact, more than 300%!
• Requires all parties to buy and sell enbloc (that means if one don't sell, all don't sell...)...

It is like a bet!

If the land gets planning permission from the government authority for development go-ahead, then hopefully a property developer will come along to buy the land at a good price and you share the profit with the other plot owners.

And since this is an enbloc buy-and-sell, you have to get everybody else who owns a subsidiary plot in the whole land to agree to sell as well.

Since these investors are all over the world, you have to find a way to reach everybody in time, and then get everybody's consent...

Sounds tough? Anyway.....

Most property developers will not speculate in such manner.

They will only buy development land that already has obtained some form of planning permission from the relevant government planning authorities, even if it cost more.

One of the reasons is because landbanking or whatever you call it is NOT a "sure thing". There are potentially a ton of complicated political and environmental issues involved.

In United Kingdom context, this concept of breaking up a plot of reserve land into smaller plots and then selling these to individual investors was introduced about 3 years ago.

The key to this type of speculative investment is to be able to obtain "planning permission" from the authorities to convert this reserve land (also known as UK Greenfield/Greenbelt land) so that property development can be allowed.

In other words, these investors are speculating that land which has been "reserved" by government can be turned into development land sometime in the future.

When this happens, the land value would jump and hence they will make a profit. This is provided they can sell the whole land as a group though.

To date, none of the land banking companies in United Kingdom have achieved this "planning permission".

Currently in Singapore & Malaysia, there are several Land Banking companies promoting land banking opportunities in Canada, United Kingdom and USA.

If you are reading this, you would likely have encountered at least one of them already.

You are likely to meet them at International Property Shows, or Alternative Investments Seminars. Somehow many of them like to call themselves anything but "land banking". They like to refer to themselves as "strategic land investments" instead. But it's all the same - they are land bankers!

So who are these people promoting land banking in Singapore?

From our observation, many of them are from "vacation time-share" & MLM (multi-level marketing) backgrounds. Many of them are hard-core direct sales marketers.

Many of them see land banking as the latest "get rich" product to sell for a good commission...

Would you let these people lure you to part with your spare cash? Maybe so, but please take a step back to think through carefully first...

Think about how all this will translate into a real profit for you, several years from now?

Land Banking promises investors with more than 300-800% return, but without any guarantee.

Stocks, bonds, shares, personal savings, do not even come close to the growth land banking promises!

This is where many profit-driven investors jump in with their eyes half closed...

Investors need to understand the risks as well as the fine print. Not every land banking deal out there is real! Some are, some are not!

If you are relying on information from the marketing company solely for your investment, our advice is for you to seek a second opinion. And preferably from someone who does not have any financial benefit from offering you the advice.

So Is It Smart To Invest In Land Without Planning Permission?

Well, Land Banking promises to be an investment option which offers a higher potential return than many alternatives. They say the Crown estate and even the Church of England are doing it.

As with any investment worth its salt, there are investment risks to be considered.

For land banking, a critical factor to consider is the likely (or unlikely) prospect of obtaining planning permission for land development within your expected investment horizon.

• How much risk can you accept?
• How much do you really know about the location you are buying?
• Do you understand the political and economic changes that could affect your investment 3, 5, 7 or longer years from now?
• How much commission is the salesperson making from your sale?
  

Make your own decision wisely. Don't let greed get in the way.

And always be vigilant about potential "get rich" scams. Good luck!


Republished from www.bigonspace.com/landbanking.htm