Product Code Database
Land banking is the practice of aggregating parcels of land for future sale or land development.
While in many countries land banking may refer to various private real estate investment schemes, in the United States it refers to the establishment of quasi-governmental county or municipality authorities tasked with managing an inventory of surplus land.
In some cases the practice is run as a scam, with land being sold above its market value and its potential for future returns exaggerated.
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 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 FCA enforcement of this regulation, many companies selling UK land plots have moved outside of the European Union and only offer land plots to non-UK residents who are not protected by FCA regulations.
There have been considerable losses recorded by investors in UK land plot investment schemes. A large number of British companies offering UK land plots have failed or been shut down by the Financial Services Authority (FSA) or other authorities. Some companies have now moved offshore after an FSA investigation. Some companies now offer UK land plots from locations such as Dubai or Singapore where the local authorities do not regulate such activities, or are not aware of the high risk nature of the investment. In June 2010 the Monetary Authority of Singapore (MAS) issued a warning on land banking plot schemes warning they may be scams with a specific focus on companies offering land from the UK and Canada.
No reference is ever made to the value of green belts or agricultural land, or the issues involved with long-term maintenance, or collectively selling tiny plots of land. The sales price is typically increased 10–100 times over the current value of the land. Plans shown have no validity in UK planning law and cannot be considered an indication of progress in the planning process. No written contractual promise is ever given for planning permission despite the typically extreme optimism of the salesperson. The salesperson will typically never mention that the land is protected, or greenbelt land and cannot be developed under current planning regulations. There is typically no possibility of getting planning permission in any reasonable timeframe.
The investor may end up paying a considerable amount of money for a small area of low-value land which has a very high risk of standing undeveloped. Once the general public becomes aware of the lack of viability of the proposed plot investment scheme, the real value of the individual plots collapses. This is typically followed by the land plot company liquidating completely, or relocating to another legal jurisdiction.
For customers that show a willingness to purchase such schemes, there may also be attempts to sell additional plot based land banking products at alternate locations, or other high yield investment programmes. Customers may also be added to sucker list which are then sold to other companies offering similar schemes. When the land banking plot company fails, plot investors may also be offered investment recovery or planning services for a fee. Such services typically are fraudulent or fail and lead to a further loss of money for the investor.
A key strategy used for selling United Kingdom 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 100 times the current market value of undeveloped land. A purchaser might pay £15,000 for a land plot that only has a current market value of £500. On this basis, most of the investment is not in land, and the 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 United Kingdom, particularly in Canada, Singapore, Thailand, Brunei and Malaysia. Residents of these countries may be naive of the UK property market and local planning regulations such as green belt zoning.
In 2008, the land banking firm UKLI was placed into administration due to insolvency, despite having taken £69 million from 4,500 people for land plots. Land International was closed down in 2008 after losing investors £10 million, and the same Land International plots were later offered for sale in Asia. In 2010, Land International (Far East) failed, causing investors to lose S$6 million (£2.5M). 200 lose $6m in British land deals MP David Heath requested a debate in the House of Commons following the offering of 209 plots in the village of Dean, saying that "while land banking may not be illegal it is undoubtedly a scam".
The UK Land Registry issued a press release on January 15, 2009 advising consumers that the Land Registry has published a guide warning against land banking investment schemes. Land Registry Head of Corporate Legal Services Mike Westcott Rudd said that the public were being "misled about the prospects of obtaining planning permission", with well-known banks and developers being falsely cited as partners in the project, and that in some cases forged Land Registry paperwork was being presented to suggest that planning approval existed where it did not.
As a result of the significant controversy and media coverage land banking received, many directors and officials of companies involved were prosecuted and handed custodial sentences by the courts.
The recent robo-signing settlement gave Attorney General Eric Schneiderman the wherewithal to fund land banks in Schenectady and Albany.
The state of Michigan also has a land bank program. Ohio passed land bank legislation in 2009.
Florida land scams have history as far back as the 1920s Florida Land Rush. Many Florida Counties have traces of these land scams today. Polk County, Florida, in particular has been devastated with land banking scams. Polk County, being the land that lies between the city of Tampa, in Hillsborough County Florida and the city of Orlando, in Orange County Florida has been a hot bed for speculative land development. North Polk County falls within the lower Green Swamp. The State of Florida has declared the Green Swamp "land of critical state concern". During the 1970s through the late 1980s the Green Swamp was sold as being suitable for real estate development. The development of Disney World and the attraction it received was the sales tool to persuade individuals to buy one acre lots at high speculative prices. These prices ranged from $2,000 to as high as $15,000 per acre. The Florida land banking scams continue today and are mostly operated outside of the United States. Unwary foreign customers are sold Florida land from outside the U.S. borders through contracts for deed arrangements.
In March 2010, the Reserve Bank of Australia governor announced that it is monitoring the effect of the rule change on the housing market.
On April 24, 2010, Assistant Treasurer Senator Nick Sherry announced the tightening of foreign investment laws as a result of a public backlash to the changes made a year earlier. Whilst they are still entitled to purchase a property of any value, temporary Residents must now sell their residence upon leaving the country, and must report all purchases to the Foreign Investment Review Board, effectively eliminating this land banking loophole. However, foreign companies are allowed to purchase property to house local staff.
It is possible for foreign individuals to create a registered company for the sole purpose of purchasing property in Australia and actively bypass the loophole fix.
As of April 20, 2010, the COAG has agreed the Housing Supply and Affordability Reform Working Party will extend the land audit work to examine ‘underused examine private holdings of large parcels of land by mid-2010.
When purchased by the land banking investor, such lands are often rather far away from existing infrastructure, which keeps prices low. The investor anticipates that, because of the area's natural productive potential, an agricultural infrastructure (sufficient roads, specialised contractors, grain storages) will develop, with more land put under cultivation and land values multiplying.
Agricultural land banking is found where large tracts of fertile virgin land still exist, where valuations are low and where legislation allows large land holdings (free hold) by domestic and foreign investors. Typical countries for such investments during recent years have been Argentina, Brazil, Uruguay, Paraguay where land prices appreciated accordingly.
Though the perception that the world's fertile land is a limited and valuable asset is by no means new, it received renewed public and media attention with the global food crisis, when phrases like peak wheat or peak soil
This shift towards ecological productivity involves a potential redefinition of the banked asset itself. Initiatives like The Landbanking Group propose moving beyond the land title as the sole focus. Instead, they emphasize measuring and verifying specific natural attributes—such as improvements in biodiversity, carbon storage, soil health, and water quality. These quantified natural attributes are then framed as distinct 'Nature Equity Assets,' creating a new potential asset class for investors seeking to directly fund nature restoration and ecosystem health. This approach aims to align financial value directly with the ecological performance of the land.Climate Finance Lab (2024), The Landbanking Group Instrument Analysis
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