Buying a small plot of agricultural land that is guaranteed increase in value after it is developed sounds like an excellent investment opportunity. This enterprise is known as ‘landbanking’. However, like any investment opportunity, you must beware of unscrupulous scam operators that are eager to take your money in return for false promises.
This is how landbanking works:
Small parcels of farmland are advertised for sale as investment opportunities, usually online or via telemarketing. You may also see stands promoting such investments at places such as lifestyle exhibitions. The pieces of land that are sold are often located in areas that have significantly high house prices, adjacent to urban areas or lands that are already allocated for development. Investors are convinced to buy the plots of land on the premise that it can be resold to a developer for a sizeable profit once planning permission has been granted.
A potential investor is likely to encounter high-pressure sales techniques combined with misleading advertising when approached by some of these unscrupulous sellers. Typically, the land that is being sold has little or no development potential and is being sold at a vastly inflated price. They will mislead potential buyers by suggesting that permission for development is already as good as granted and that the property value is guaranteed to increase.
The reality is that the buyer may be persuaded to purchase land that will never be suitable for development and is unlikely to ever increase in value. For example, the land might be located in a swamp or a flood risk area, or on ground that is geologically unsuitable for development. The actual value of the property is often a mere fraction of what the unlucky investor has paid, making it highly unlikely that he will ever be ever to sell it or recover his investment.
Protecting yourself from dishonest landbankers
- Always investigate any company thoroughly before giving them any money. Do your own investigation and do not take the salesman’s word for anything!
- Ask advice from a professional who is not connected to the company who is selling the land.
- Be sceptical of any claims that your investment is ‘guaranteed’ to make money. After all, if these investments were so lucrative, why are these companies so anxious to sell them to you?
- Talk to the local planning authorities to see if it is likely that there will be planning permission granted for the property.