Banking on land? Don't bet too high

Investment in possible future development is tempting but risky, says David Prosser

Nigel Walter, managing director of UK Land Investments Group, is on a mission to convince the world that land banking is a legitimate investment activity. "There is nothing wrong with marketing a product to investors that enables them to benefit from profits previously only made by property developers and private landowners," he says.

Making the case is an uphill battle. The land banking sector is under fire from everyone from financial regulators to the Campaign for the Protection of Rural England and has been regularly attacked by the media - not least because it attracts so many conmen.

Make up your own mind. Land bankers buy up undeveloped land across the UK, often on green-field or even green-belt sites. They offer it for sale - usually breaking one site into many plots, costing from £10,000 each - on the basis that when the land is re-zoned as suitable for development, investors will cash in.

The catch is there is no guarantee the land will ever be re-zoned. In many areas, local councils insist they will never give permission for the land to be built on, which could leave investors with worthless plots.

On the other hand, the UK faces a housing crisis. The Government target is 4.2m new builds over the next 20 years but there is a current shortfall of 50,000 houses a year. These properties must be built somewhere and there is no doubt land will be re-zoned in the future; the owners of that land will make money.

Greg Mulholland, Liberal Democrat MP for Leeds North, is not convinced. On Friday he will present a private members' bill to outlaw land banking.

"I think land banking is unethical," says Mulholland. "It puts pressure on land in developing communities and it's an investment gamble - most people would only go into this if they expected a reasonable return within a reasonable time period, and I think that's questionable."

The dilemma for investors is twofold. First, there's the question of whether there is any money in land banking - not one company can produce examples of investors who have bought into land subsequently re-zoned, though this is a young industry selling five-year to seven-year investments.

More worrying is the vast number of cowboy operators. Up to 50 rogue companies are currently marketing plots with promises of huge returns, despite having no idea whether planning permission will ever be granted.

In March, the Department of Trade and Industry became so concerned about one company, United Land Holdings, it raided the land banker's stand at the Ideal Home Exhibition. The DTI is now trying to wind up the company.

The Financial Services Authority, the UK's chief City regulator, would regulate any land banker set up as a collective investment scheme. That means the company both finds land for investors and then manages it, maintaining it and filing planning permission requests. But currently the FSA authorises no such companies.

"The FSA cannot regulate companies operating beyond its remit, even if we think they're up to no good," warns Eleanor Hughes, a spokeswoman for the regulator. "If we don't regulate a scheme, investors who lose out have no recourse to ombudsmen schemes or our compensation fund."

The only other protection is that the DTI can take action against lawbreakers. A company cannot deliberately make misleading claims about its goods and services - but it's sometimes hard to establish where marketing spiel ends and deception begins.

As Mulholland's bill is almost certain not to become law - it will not get sufficient parliamentary time - the MP says the next best thing would be to bring the land banking industry fully under the supervision of the FSA. That call is backed by Walter, who says one of the biggest frustrations for legitimate land bankers is the damage done by scam merchants.

In the meantime, Walter says there are at least four checks to make on a land banking company before you even consider whether a potential investment has genuine merit.

Check with the Land Registry that the company actually owns the plot on offer, he says. Check the track record of the land buying and planning team, and ask how it can back up claims that the plot is suitable for development. Study the company's accounts - does it have sufficient cash to fund planning processes and is it retaining its own stake in land investments?

Finally, get agents to take you to the site and explain its promise - if it's not next to existing residential developments, be suspicious. "Clearly, plots of land being offered for £10,000 or less with promises of obtaining planning permission within a couple of years is nonsense," says Walter.

A 250 per cent return - if the land is finally cleared for development

A site in Earl Shilton, Leicestershire, is typical of the sort of property that UK Land Investments has been marketing.

The project began when UK Land identified East Midlands as an area where existing housing targets had been set at a low level - it expected these to be revised upwards. It then identified the plot in Earl Shilton on the basis that outline planning approval had been given for a bypass of the town.

The site that UK Land bought was between the existing residential area of the town and the proposed bypass route, with the new road separating the land from open countryside.

Since UK Land acquired its plots, local housing targets have been increased and the bypass given final planning approval. The company believes that once the bypass is completed, towards the end of 2008, "it will greatly assist in the case for [the land] to be included within the settlement boundary of Earl Shilton... and serve to contribute towards the required housing targets".

The company has just finished marketing the site and investors have bought plots for prices from £8,000 to £12,000. UK Land is predicting returns of 250 per cent over a five- to seven-year term.

However, while the land looks promising, there are no guarantees. It has yet to be rezoned for development and local councillors currently do not have plans to do so.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
people

Arts and Entertainment
JJ Abrams' seventh Star Wars, The Force Awakens
filmsThe first glimpse of Episode VII has gone online after weeks of anticipation
News
Michael Buerk in the I'm A Celebrity jungle 2014
people
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
art

Presents unwrapped, turkey gobbled... it's time to relax

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Citifocus Ltd: German Speaking Client Specialist

    £Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

    Citifocus Ltd: Performance & Risk Oversight

    £Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

    h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

    £90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

    h2 Recruit Ltd: Telesales Executive - Cloud Software/SaaS - £37,000 OTE

    £25000 - £37000 per annum + benefits: h2 Recruit Ltd: Are you seeking to furth...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game