Offshore Capitalist

Landbanking: the plots thicken

From Guardian Money:

Double, treble or multiply your money even further – and all within a few years. It sounds an ideal alternative to low-interest savings and high-risk shares, especially, as the promoters point out, “They’re not making land any more”.

Gains like these are held out by “landbankers”, unregulated firms that buy land without planning permission to sell to investors in small slices. Purchasers are led to expect the field will get the go-ahead for housing development, seeing it explode in value.

But the winners are the promoters rather than the investors. Typically, landbankers buy land for under £10,000 an acre and then cut it up into plots of one-tenth of an acre. They sell these plots to investors for £8,000 to £16,000 each – earning them around £80,000 to £160,000 an acre.

Over the past five years, Guardian Money has warned that, despite taking in tens of millions of pounds from investors, no landbanker has ever delivered the expected profit bonanza that comes with planning permission.

Instead, we have reported how several landbankers have gone bust, including Land Heritage (UK)* and United Land Holdings, leaving buyers with virtually unsellable plots. These investors had no chance of getting their cash back from a compensation scheme, as land sales are not protected by the Financial Services Authority. In 2007 the FSA declared that although it does not regulate land as an investment, “there is a risk that many of these schemes are in breach of the financial regulation regime if they are structured as a ‘collective investment scheme’. To operate and promote such a scheme legally, the operators would need to request and obtain authorisation from the FSA, which would then regulate these firms.”

via Landbanking: the plots thicken | Money | The Guardian.

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