Risks of land banking

Person signing contract

29 Oct 2018 | 3 min. read

Land banking lets you invest in undeveloped land in a foreign country. Find out what it is, the risks involved and what to consider before investing.

Key takeaways

  • Land banking schemes that raise funds from retail investors may be regulated by MAS. However, some land banking schemes are unregulated.
  • Check the MAS Financial Institutions Directory to see if the operator is licensed and what they are licensed for.
  • Do your own research and be wary if the land is in a location you are not familiar with.

What is land banking?

Land banking is the practice of buying undeveloped land with the intention of holding and selling it (often to a developer) at a profit at a future date.

Land banking companies seek investors to buy small plots of land and promise high potential returns or regular payouts for a fixed period. The land is usually on the outskirts of a city, where urban development seems likely to take place.

Investors are often told that developers would be willing to buy the land at much higher prices when the land is developed or when plans for urban development are drawn up.

Beware of the risks

Investing in land banking is not like investing in solid ground. Some land banking schemes have turned out to be scams. Be cautious if the land being sold is in a location you are not familiar with.

With land banking, you should know that:

  • Plans to develop the land may be derailed if there is difficulty getting permits
  • Getting out of such investments may not be easy if there are no buyers
  • It is difficult to assess if the purchased price quoted is a good deal
  • Individual participants may not have control over the price
  • Your money could be tied up longer than expected if plans should stall
  • You will be exposed to foreign exchange risks as the land sold is usually overseas

Is land banking regulated?

MAS regulates land-banking schemes, or schemes involving investors owning units in real estate where they are managed as a whole by the scheme operator.

Schemes wishing to raise funds from retail investors would first need to be authorised or recognised by MAS and register a prospectus with MAS, unless exempted. Operators of such schemes offered to retail investors will need to be licensed by MAS.

How to check

Check the MAS Financial Institutions Directory to find out if an operator is licensed by MAS and the regulated activities they are authorised to conduct.

MAS aims to safeguard the interests of investors by authorising competent and professional persons to provide regulated financial services. However, not all land-banking schemes and their operators are regulated by MAS. If you choose to deal with persons that are not regulated by MAS, you forgo the protection afforded under laws administered by MAS.

See also: Dealing with unregulated persons

Do your homework

Do your research and do not simply rely on the salesman’s advice. They may exaggerate the value of the land to close the sale.

Before investing your hard-earned money, always scrutinise the details:

  • Find out about the land being sold. Are you familiar with it? Do you know the land development laws of the country? How can you be sure the price quoted to you is a good deal?
  • Check out the company offering land banking. Is it licensed by MAS? Check the MAS Financial Institutions Directory. Is it regulated in the country they are selling land in? Is it a credible offer? Can you trust them with your money?
  • Learn about the laws of the country. What would be your rights to the land as an investor? What recourse is there if a dispute arises with the company?
  • Is the promise of high profit believable? What are the returns based on and when will you receive them? Are the returns guaranteed and is it in writing? How long must you stay invested? What are the pitfalls if you need to withdraw from the scheme?

Checklist

Protect yourself

  • Do not be lured by promises of high returns
  • Do not only rely on the person marketing the land banking scheme to tell you everything
  • Always check on the factors that could result in a loss, and your options for recourse if there is a dispute
  • Always Ask, Check and Confirm before committing your funds to an investment

Last updated on 02 Nov 2018