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Land Banking, Beware The Scams

Land banking occurs where companies divide land into smaller plots and sell it to investors on the basis that once it is available for development it will soar in value. The problem, and where a scam can arise is where the land being sold is often in areas of natural beauty or historical interest, with little chance of it being built on.

The number of land banking schemes being reported to the FCA has risen as more and more people discover that they have invested in a plot of land in a green belt, a nature conservation or other protected area. Most recent plots sold include one on a site of scientific interest, one on steep slope, and another with no access to it. The FCA have estimated that land banking schemes have cost UK investors as much as £200 million.

People normally fall for these schemes through cold calling, where investors are told that they will be able to make a big profit on small plot of land once planning permission is granted. In reality many plot holders instead lose large sums of money as this permission is often not granted, and they are left with a plot that is practically worthless.

Not all land banking schemes are scams, however it needs to be made clear to investors that there may be restrictions on the development of the land or that the land may be protected. If an investor is considering buying land in a land banking scheme it is strongly advised that they contact the local council where the land is located and asking them whether the land may ever be released for development.

Another way to stay safe from any land banking schemes if you are considering investing is to see if the company promoting or operating the scheme is authorised by the FCA. If they are not then you will not have access to the financial ombudsman or compensation scheme if things go wrong. Finally be aware that these schemes are usually set up as a simple real estate transaction and have small print stating that the success of the investment is subject to planning permission being granted, underlining that the chances of getting any money back are slim.

Remember, if it sounds too good to be true, then it probably is.

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