LANDBANKING DOESN’T WORK
This column could save you £10,000. Or more.
If you get a call out of the blue suggesting you invest in a piece of land on the hope – or promise – it will get planning permission and make you a fortune, just put the phone down.
These so-called ‘landbanking schemes’ do make a lot of money. But for the people who run them, not for those they persuade to invest.
They buy agricultural or protected land at low cost. They divide it up into tiny plots. They sell these to investors for vastly inflated prices - £10,000 for a small strip is typical.
Some offer ‘money back guarantees’. But when investors try to get their cash out the sales person will make them more offers of sure fire deals to take more money off them.
The land they buy is often close to land which already has homes built on it. But it never has any realistic hope of getting planning permission for housing. It might be in an area of outstanding natural beauty; near a grade I listed building; part of the local protected view; in the Green Belt; or outside the boundary of a village or town where the local County Plan allows building.
Often there is no access to the site.
The plots they divide the land into are tiny – usually around 1/30th of an acre, about two cricket strips side by side. Not big enough to build a reasonable house on.
The plots are always neat rectangles side by side and maps will show roads running round them. But the plan will be designed to maximise the number of plots to sell and will never be arranged in a way that planners would allow.
And if, against all these overwhelming odds, planning permission was ever granted then two more factors will stop investors making money.
First, no developer will want to deal with up to a hundred different owners. (And, incidentally, developers have all the land they need at the moment. And if they ever did need more they are expert at finding likely – and intact – plots.)
Second, the scheme owner will usually retain a so-called ransom strip to control any possible access to the plots they have sold. So the investors can never, ever make money. And no-one ever has.
The Financial Services Authority reckons landbanking is a £200mn a year business and is investigating 20 schemes. The City of London Police believes the known schemes are just the tip of the iceberg and that organised crime is getting involved.
The sales pitch and the websites can seem persuasive. But ask yourself this. If there was a realistic chance of selling the land for building wouldn’t the firm just hang onto it intact? Why share the profits with others?
So just hang up and save yourself £10,000. Or more.
Go back to Paul Lewis front page