Dear Mr TanI notice that many Singaporeans seem to fail to grasp the problem with land banking. The argument is always that land increase in price and since you own the land you cannot lose.
I have created this chart to explain my case. This is based on real land banking company data. I used a starting plot price of 10,000 UKP in 2006 converted into S$.
The green belt land value is based on land registry data in 2006 The value with planning permission is based on a land banking company estimate of 250% returns adjust by the recent fall in property prices.
I have adjust all prices using both currency and the recent boom and bust in the UK property market. I have made an assupmtion of 5% per annum increase in the value of land from 2011 forward.
Since there are no recorded successes with UK land banking plots I cannot see how any company can make claims for expercted, estimated or anticipated returns on this investment.
You will note according to this graph that in real terms land banking plots have got cheaper since 2006 as the UK currency declined in value. However many land banking companies have increased their UK pound price of their plots so that they still get the same number of Singapore dollars. As an example X increased their plot price from 5600 Pounds to 8000 Pounds in 2008.
I have adjust all prices using both currency and the recent boom and bust in the UK property market. I have made an assupmtion of 5% per annum increase in the value of land from 2011 forward.
Since there are no recorded successes with UK land banking plots I cannot see how any company can make claims for expercted, estimated or anticipated returns on this investment.
You will note according to this graph that in real terms land banking plots have got cheaper since 2006 as the UK currency declined in value. However many land banking companies have increased their UK pound price of their plots so that they still get the same number of Singapore dollars. As an example X increased their plot price from 5600 Pounds to 8000 Pounds in 2008.
The simple question to ask oneself in any investment before you commit is why the professionals, who know more than the customers, will want to give hefty returns to the customers if they believed what they are saying? In cases of UK land and property, I too have invested in UK property before but not in land banking as I asked myself that question and came to the conclusion that if they believed what they said, they would have kept the profits themselves. Instead, I did my homework and bought a landed freehold two storey terrace house in Greater Manchester and pocketed a 680% return 5 and a half years later. Maybe one day I will blog about my various investments and how to go about doing it without the high cost of middlemen who add nothing but frustrations to the process.
ReplyDeleteYet another UK article on issues with plot based Land Banking here
ReplyDelete"Buy land, they’re not making it anymore,” penned author Mark Twain more than a century ago. Sounds like good advice, except for the fact that – in this country at least – the majority of the land would be a useless purchase for the majority of the population. We may feel like we are running out of space, yet our planning infrastructure means we have only built on around 10% of it — and, in the foreseeable future, it doesn’t look set to change much. The countryside is fiercely protected, making buying green belt land for anything other than agricultural purposes a futile exercise.
Or is it? Around five years ago, a band of companies appeared on the scene, selling a scheme called ‘landbanking’, whereby ‘bargain’ greenfield plots were offered to selfbuilders and investors with claims that, as there had been development near by, these too could get planning permission for new homes in the not-sodistant future — making the land a valuable commodity.
The ‘plots’ were in fact small parcels of a much larger chunk of farmland that was divided up, with each individual plot measuring as little as a 10th of an acre. The prices may have been low, but were still at a premium of anything from five to 100 times the market value of the land. However, the sad reality was that the plots were extremely unlikely to ever receive planning permission – with many of them sited in protected areas – meaning angry investors were left with a pretty worthless piece of a field.
It sounds like a scam — and it is one. But unbelievably it’s still going on, and worryingly there has been a sharp increase in the sale of these plots this year, with thousands falling victim to the scam. H&R first exposed landbanking schemes in 2004 and has seen several agents shut down since then, with three more (Chapeltown Associates Limited, Highland Properties Estate Agency Limited and Osprey Highlands Estate Agents Limited) ordered into liquidation in August after an investigation by The Insolvency Service.
Full article at Homebuilding & Renovating
Land banking is listed as one of the Top 10 Worst Property Investment Ever according to Times Online (UK):
ReplyDeleteThe official link can be found here:
http://timesbusiness.typepad.com/money_weblog/2008/06/post.html
9. Land banking
Investors have lost thousands of pounds to “landbanking” firms in recent years. Dodgy companies buy tracts of greenbelt land, then sell chunks of it to individuals on the promise that when houses need to be built on their acres of countryside, the value of the land will soar. This will happen a couple of years after their purchase, investors are told to convince them to hand over cash. However, it isn't that easy to get rich quick. It emerged that many of the schemes fell within areas that local authorities said would never gain planning permission for new homes, or at least not in the lifetime of the devastated investors.
Note that if you've invested few thousand dollars into these scheme, basically it may be not worthwhile to employ an experienced lawyer to help you to get your money back.
Giap~
good pt of note above & fairly said so,i know of friends who have brought into such investment & wanted out but cannot do so bcuz new buyers for his land have not been found...& just in exchange losses alone, his 'profit' would have been wipe out let alone still making penny after nearly 4 years!& couple with that could u beat that he is being sold the idea to leverage since SE dollar is strong & that he could get more unit of land?!so, instead of getting being paid,is a drag on, invest more or no show on this game...poor chap still want face...
ReplyDeleteGood graphic. The chart is missing the administrative cost of maintaining and selling the green belt land on the open market without planning permission. Even if you can sell the green belt plot at a loss, the cost of sale and maintenance may wipe out the remaining tiny residual value.
ReplyDelete