Increasing pressure on the construction industry from Government to deliver land for housing has led to a rise in the number of property investment companies acquiring arable land from farmers to sell on for development.
Whilst this is not a new thing, we are surprised at the number of times we are approached by individuals who have purchased small plots from investment companies, and are now looking for advice on what they can do with them, and how likely it is that the land will achieve planning.
But what exactly is land banking and how does it work?
This is where a company divides the land they’ve acquired into lots of small plots to sell on to property investors who buy the plots in the hope that it will soar in value once planning is achieved and it’s available for development.
Whilst not all land banking investments are scams and there are legitimate companies that operate in this space offering sites that do have some prospect of achieving planning, the reality is that this sort of property investment is rarely as straight forward as it sounds.
We are seeing an increasing number of investment companies bringing the industry into disrepute with some very misleading schemes.
Often, what looks on the face of it like a great opportunity to line the coffers of your pension pots, can sadly end up costing money.
What are the risks?
Often the land in question simply does not have the potential to be developed in the future.
If it is situated in an Area of Outstanding Natural Beauty or is of historical interest or in the Greenbelt, the likelihood of it getting planning for development is slim.
Not only this, the land might seem viable for development on the face it – it could be surrounded by housing or appear to act as ‘infill’, but once you dig a bit deeper, you may discover that the land floods, or it is designated as a protected area.
Even if the land does have potential for housing, once it has been split up into multiple plots, you will be reliant on the original investment firm (who typically retains ownership of some of the site themselves) to promote the land through the planning process.
The question is, do you have the skills, time and money to do this?
What you may also find is small print stating that the success of the investment is subject to planning permission being granted, so the investment company does not promise that the land will ever get planning.
So how can you protect yourself?
Although land investments are not regulated as such by the FCA, any firms operating collective investment schemes (CIS) do need to be regulated.
If you do your homework before acquiring anything, you can protect yourself from getting scammed.
If you’re considering investing in land, we strongly recommend that you seek professional property investment advice early on in the process, as this will allow you to back out of a deal if needs be.
Before committing to anything, you should:
- Do a background check on the investment company you’ve been approached by – what is their track record in this area?
- Check who has legal ownership of the land
- Contact the local council where the land is located to ask when the land will be released for development – just because you’ve been told it will be able to be developed, doesn’t mean it’s true!
Finally, if the investment opportunity sounds too good to be too, it probably is.
For help or advice in relation to this issue, don’t hesitate to get in touch with our expert property investment and development team.