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Last update : July 2010
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Land Banking Companies
Why the majority of them are (legal) scams
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| The sad truth is the plots of land sold by Land Banking firms have about a 1% chance of receiving planning permission over the next 20+ years. Although of course the land banking firm will give the impression that planning permission will soon be granted.
Land banking companies started appearing around the year 2000 and most if not all of these firms follow a similar business plan -
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- Agricultural land is presently priced around £3,000 an acre
- The land banking company will approach a farmer or landowner and offer to buy 5-20 acres at well over market rate which normally means they strike a deal
- The company will then split the land up into smaller parcels and try to sell them for around £7,500 - £25,000 per plot (1 plot is usually 0.1 of an acre)
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| But why would investors buy at such inflated prices - simple, because the land banking company will have convinced them that planning permission is sure to be granted within say 5 years and then the plots will have risen in value by 200% - 500%. |
| Do your own independent research - It's absolutely critical |
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One of the main reasons people fall victim to the land banking companies is because they don't do their own independent research and instead rely on the salesmen's advice. See secret number 2 - Do your own research - it won't take long which is part of this site's 10 Secrets to Good Personal Finance.
But relying on the salesmen to offer unbiased advice is the worst mistake a potential investor can make.
Think about it - it's in the best interests of these people to talk up the value of their land (remember, they already own it) to make the maximum profit. And if that means promoting half-truths and possibly saying outright lies to make the sale then so be it.
What's really scary about any potential lying is most companies will have a smallprint clause in their contract, perhaps similar to 'the company is not responsible for anything said by its salesmen during the sales process'.
Research advice
If I were thinking about buying some land I wouldn't listen to a word the salesmen say as their advice will be extremely biased into making the sale. Instead I'd contact some or all of the following:
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- The local Parish Council - Find who to speak to via the local council's website. Ask them about the land, its chances of being granted planning permission and if anything is known about the land banking company
- The local press - Land banking firms usually buy Green Belt land which they try to convince their clients has a good chance of being rezoned. As it's green belt land you can be sure the locals will be up in arms about it being developed and will protest. The local press are sure to pick up on this story so check with them
- The local estate/land agent - Try to a speak to a land agent rather than an estate agent and ask them about the land in question. Find out if they have any views on the piece of land and the land banking company. It is highly likely that they know all about the plot and its chances of ever getting planning permission
- The local council - contact the planning department and ask them what they know about the land. Often they will already have issued a statement usually along the lines of ''The prospects of the land's greenbelt status changing in the foreseeable future is highly unlikely' which is a polite way of saying 'no chance'
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| And finally use some common sense - never buy any land or property that you haven't physically seen. Yes, it sounds obvious but you'd be surprised how many people buy from pictures or a Google map. |
| Be wary - you're talking to professional salesmen |
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Probably your contact at the land banking company will have zero qualifications relating to property and the planning process. He will however be a skilled salesmen whether selling land, time shares, double glazing or sunbeds. The tricks and strategies for hard selling don't really change from product to product.
Also, bear in mind that it will be hard to catch the salesmen out as they'll all be talking from preprepared telephone scripts. So if you ask them an awkward question they'll have a standard reply ready and it is designed to sound plausible.
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| 10 signs you're being setup to buy very expensive land |
| Some more tips to help you keep hold of your cash and not fall prey to a land banking firm. If the company in question shares any of the similarities or points below then I'd strongly advise you not to get involved. |
- Great looking website - Good, professionally designed website and expensive glossy brochures
- Flashy company name - Often a flashy sounding name like 'The Consolidated Real Estate Partnership' - many land banking firms love to use the word 'partnership' in the company's name
- Pushy salesmen - Extremely polite and seemingly knowledgeable salesmen. Although they can turn nasty if they spend time with you on the phone but then you decline their offer to invest). Plus, once they think you might be interested they will probably call many times a week
- Reserved plots of land - Very quick to say they'll 'reserve' you a plot of land often for as little as £100 - £500
- The price - The plots cost between £5,000 - £25,000 but chances are you'll be told that all the cheaper plots have been sold (they've got to create an illusion that this is a hot deal and you've got to be quick)
- Millions of new houses needed in the UK - On their website plenty of talk and news reports about how the UK needs 100,000s if not more houses every year - many of the sites make this point time and time again almost to the point of brainwashing
- Marketed to the man-in-the-street - Work out who the website is marketed to, ie large property investors/companies, institutions, or the man-in-the-street. If it's the latter then beware because sophisticated property developers and investors certainly would laugh at the company's claims
- Plenty of happy smiley people - Does the website have lots of flashy photos of smiley happy people, houses being built or architects hard at work - if so it's a big red flag
- Easy money for the little guy - The websites often promote that in the past only the very rich could make money out of property but now everyone can, including you!
- Does the company's address stack up - Many land banking firms don't want their clients to know where they're actually located so use a mail drop as their official address. So Google the address and if other companies come up in the results with the same address it's more than likely a mail drop. And this is yet another big red flag as respectable companies don't use mail drops
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| The Asian community is often targeted |
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For some reason the land banking companies have aggressively targeted the Asian community (in the UK).
There are also many reports of land banking firms targeting investors in the Far East (specifically Malaysia) and the Middle East, (specifically Dubai). I would think they're trying to sell UK land plots to a combination of UK expats and foreign nationals.
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Common Sense alert -
Often the best way to shield yourself and your money from scammers is to use nothing but common sense.
So if you're located outside of the UK common sense suggests buying potential development land from people and companies you don't know without ever visiting the site in question is pure madness.
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| Land Banking Summary |
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For most investors dealing with a land banking firm will result in them losing the majority if not all their money. And I can't really put it simpler than that.
But readers can easily protect themselves from being taken in by following the guidelines and advice offered on this page.
Finally, pay special attention to the fact that in an extremely unusual move the Government agency, The Land Registry, has published a report warning about the dangers of buying potential development land from land banking firms.
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| Further research |
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Should you want to do further research into the land banking industry check out the following links:
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