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Landbanking in UK:Scam?

If you are a Singaporean you can’t run away from property agents,insurance agents. For me add another category: land banking agents.

Being someone interested in fiance and investing, it is only a matter of time before land banking gets introduce to you.

What do i think of it? i think its a supposed win win economic model. its just that you end up being the vegetable head by funding the agents and companies dreams earlier than yours, after taking away a huge chunk of it for their middleman fees.

Will i invest in it? i believe they are not a scam but vegetable head shop. An investor wants to get in on the property scene, wants stable returns but dun want to vest large amounts into it will be interested. I am still not fully comfortable in the idea of it and the inner workings of it.

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“Buy land, they’re not making it anymore,” penned author Mark Twain more than a century ago. Sounds like good advice, except for the fact that – in this country at least – the majority of the land would be a useless purchase for the majority of the population. We may feel like we are running out of space, yet our planning infrastructure means we have only built on around 10% of it — and, in the foreseeable future, it doesn’t look set to change much. The countryside is fiercely protected, making buying green belt land for anything other than agricultural purposes a futile exercise.

Or is it? Around five years ago, a band of companies appeared on the scene, selling a scheme called ‘landbanking’, whereby ‘bargain’ greenfield plots were offered to selfbuilders and investors with claims that, as there had been development near by, these too could get planning permission for new homes in the not-sodistant future — making the land a valuable commodity.

The ‘plots’ were in fact small parcels of a much larger chunk of farmland that was divided up, with each individual plot measuring as little as a 10th of an acre. The prices may have been low, but were still at a premium of anything from five to 100 times the market value of the land. However, the sad reality was that the plots were extremely unlikely to ever receive planning permission – with many of them sited in protected areas – meaning angry investors were left with a pretty worthless piece of a field.

It sounds like a scam — and it is one. But unbelievably it’s still going on, and worryingly there has been a sharp increase in the sale of these plots this year, with thousands falling victim to the scam. H&R first exposed landbanking schemes in 2004 and has seen several agents shut down since then, with three more (Chapeltown Associates Limited, Highland Properties Estate Agency Limited and Osprey Highlands Estate Agents Limited) ordered into liquidation in August after an investigation by The Insolvency Service.

Yet more worrying is how professional some of these companies appear, with citycentre offices, sleek websites and glossy brochures to back up their sales pitch. And since the recent Government clampdown, some of them are being very careful about what they tell investors — so as to not technically break the law.

One hopeful investor Brian Aylott had a lucky escape, after putting a deposit of £500 down with Scala Land Group on a plot in Stratford-upon-Avon that is not only green belt, but also a wildlife conservation area. “It wasn’t until I paid the deposit and received the site plans and area documentation that I began to realise it might be too good to be true,” he says. “So I contacted the planning department at Stratford, and spoke to a lady who was amazed that the area was being sold as potential building land, due to the strict restraints on the site. She said there was no way it would ever receive planning permission. I was close to putting another £14,000 down, and I’m so glad I realised the truth before it was too late.”

After some digging around, Brian found out that Scala had paid £375,000 for the land, and had divided it up into 200 plots to sell off at around £15,000 each — making for a total profit of £2,625,000. A massive return by any vendor’s standards.

One would-be self-builder, who wishes to remain anonymous, recently paid over £5,000 for a site in Buckinghamshire from a nowliquidated company: “I really believed it was a legitimate offer. Of course, I knew the plot was cheap, but I can’t afford to pay for land with permission and the agent said that in five years time I should be able to apply for planning permission to build my own home. After I handed over the money, he kept calling me, forcefully offering me other plots, so I started to suspect something was very wrong. I feel like such a fool.”

Many companies also target other countries, where residents have little knowledge of UK planning laws. Some sites even include a version of the Royal Coat of Arms. Mohammed Naeem, a Pakistani residing in Saudi Arabia, was targeted by Switzerland-based Hambrook and Greenstock in 2006: “They told me that there were 70m² plots on offer in Sible Hedingham, and that if I bought one before the 2012 Olympics I would get a 1,000% increase when I later sold the land. I was greedy enough to rush out and buy one for £5,500. Nothing can now be done as the company has been liquidated.”

Robert Burns, Head of Investigations and Enforcement at The Insolvency Service, comments on the situation: “We will continue to crack down on companies and individuals which deliberately mislead the public in this way. I’d encourage anyone approached by companies offering plots of land on the promise of future planning permission to be on their guard.”

While there is a completely separate genuine market out there for investing in farmland to sell on, it’s a lottery for the inexperienced investor or selfbuilder who plans on redesignating the land — and it tends to only be large sites that are successful, not small individual plots that will almost certainly never get planning permission. Anyone who invests in a plot like this is buying one very expensive lottery ticket.

What Happened When H&R Spoke to the Landbankers
H&R went undercover as an inexperienced self-builder seeking a bargain plot in the Midlands, and contacted two landbanking agents. Here’s what happened…

Landbanking Agent 1: This agent was selling off three lots in Burton-upon-Trent, starting at £63,000 for a 15- acre plot. The agent was careful not to guarantee that we would gain permission to selfbuild upon the land, but did state that it was “definitely a good investment for the future” if we were prepared to wait, and claimed that people were, “making a 50-60% profit by selling these plots off anyway.” However, when pressed, the agent admitted that no other similar plots had as yet been successful in gaining planning permission.

Landbanking Agent 2: The accommodating sales representative immediately reeled off house sizes we could expect to build on land in either affluent village Balsall Common – from £9,500 – or “a place called Stratford-upon-Avon” – starting at £12,000 – which, as Brian Aylott (SEE ABOVE) discovered is in a wildlife conservation area. He claimed that we should look to a timescale of around five years, and that as the company had “only been established for four years,” that was why no plots had currently been built on. He pressed that the plots were selling quick so we should “act fast as there aren’t any more available in the Midlands”. He did state that it was a mid-long-term option, but was confident that we would be successful.

Expert Comment
Chris Atkinson from consumer awareness site PropertySCAM (propertyscam.org.uk) offers his views on landbanking.

“On the matter of the likelihood of individual plots receiving planning permission, it isn’t possible to generalise. It may well be the case that some sites will eventually be developed, though there is no present prospect of this happening, and of course many sites will never be developed, being green belt, nature conservation areas, SSSIs, flood plains and so on.

“What purchasers all too often fail to understand is that planning permission does not just happen. Now that landbankers fall over themselves to show that they are not operating collective investment schemes and are thus not subject to FSA authorisation, they no longer even pretend that they intend to assist plot owners with the planning process. The onus is on individual plot owners to seek planning permission and, unless such efforts are coordinated, none is ever likely to succeed. No authority will give permission for development on one land-locked plot in the middle of a green belt field.

“We have never seen a collection of plot owners sufficiently well organised to collaborate on the re-zoning of an entire plot site.”

Related posts:

1. Profitable Plots: An investor’s testament
2. Words from an actual insurance agent:The industry is flawed?
3. Achieve Top Position in Insurance

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