Monday, July 28, 2008

Land banking

A friend told this story to me.

Singaporeans love land. They have seen the price of land increase from $3 psf to $300 psf over the past 50 years. As they missed this wonderful investment, they are ready to jump at similar opportunities beyond Singapore.

Some entrepreneurs found a way to meet this demand. They choose a familiar city in Canada or USA. They are able to buy a big plot of land far away from the city, at a very low price. They divide the land into plots of marketable size and mark up the price by 10 times or more.

They employ a marketing company to sell these plots to Singaporeans. The marketing company can a large commission, maybe 30% or more, from the sale price. Many consultants love to sell this product and earn big commissions.

There is no way that the investor will know that the land is in the wilderness, with no road access, or facilities like power or water. They do not know the real value of the land, except the promise of the marketer that no investor had sold the land at a loss. (Actually, there is no transaction at all, as there is no investor willing to buy the plot from the original investor).

What is this investment called? It is called "land banking".
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3 comments:

Raymond T said...

You can use any of the above to substitute the "lawyer" in the joke that Mr Tan so kindly posted a couple of days ago :D

July 28, 2008 10:10 PM
Everlearning said...

Ten years ago, my daughter's classmate's mun shared with me that she bought an apartment in a resort in Malaysia. She realised it was a bad investment and had tried her best to sell it away at a loss.
If my memory is right, there was quite an aggressive marketing about owning properties overseas; the viewing often took place in posh local hotels. This kind of investments only appealed to the rich.
It is better to be conservative and careful when investments such as these are dubious and always disadvantaged by the distance if matters screwed up.

July 28, 2008 10:30 PM
Wealth Journey said...

Rule of thumb for any investment.. - "If it is sounds too good to be true, it probably is."

July 29, 2008 12:50 AM

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