Over the past two years landbanking scams have doubled, heavily impacting older investors.
Landbanking cases double
Landbanking scams, in which investors are sold worthless plots of land, have doubled in the past two years according to new figures released by the Insolvency Service, with 67% of victims aged 50 and above and 44% aged over 60.
Company Investigations, the part of Insolvency Service tasked with tackling poor company practice, has dealt with 30 cases of landbanking in 2011 alone up from 22 in 2010 and 15 in 2009.
Since March 2007, it has wound up 50 landbanking companies that have lost victims of the scam over £30 million. It is estimated that losses from all landbanking scams now exceed £200 million.
What is landbanking?
Landbanking companies buy a piece of land and subdivide it into smaller plots, which they sell on to individual investors at an inflated price. Firms cold-call potential investors offering undeveloped, usually greenfield land for sale, with the promise of huge returns when planning permission for development is granted. Glossy marketing material quotes experts, politicians and studies extolling the need for affordable housing and urban redevelopment.
Once you’ve invested, the company will try to lure you in further. Often the land is protected from development without planning permission under a blanket order known as an Article 4 Direction.
In some cases, companies have been shown to produce false land registration certificates and investors end up not owning the land. It can be very difficult to differentiate between a real land banking scheme and an investment scam.
Landbanking can never work
We believe the land banking model can never work. Dividing land into individually-owned plots makes it less likely to be built upon, as no developer would want to deal with hundreds of separate owners.
If the land investment company offers to manage the land on investors’ behalf, it would constitute a collective investment scheme which would require FSA registration. Most land banking firms do not have this, leaving investors with little protection if the company goes bust.
Be aware of cold calls
Jonathan Phelan, the head of unauthorised business in Financial Services Authority (FSA), warned consumers to be wary of cold calls offering the sale of land.
‘Most of the money placed with these companies disappears and to make matters worse, as the firms are not authorised by the FSA, such investments are not covered by the Financial Services Compensation Scheme.
‘As land banks often snare new investors by cold calling them, the lesson remains: if you are called out of the blue with the offer of land that is “guaranteed to rocket in price” – be very suspicious indeed.’