Sadly, there is no guarantee that the land will get council approval for development in the future or not. In a land banking scheme, the worth of your unit depends on future zoning changes and the consequent demand. However, when you invest in a land banking scheme, while you speculate on the increased market value of your investment, the primary wager is whether the land will gain future developmental approval or not, which makes it comparatively riskier than buying a house. Luckily, the current state of the real estate market reduces the speculative risk involved in property investment to an extent.
For example, when you invest in property, you speculate that the value of your investment is going to rise in the future. It also helps to understand the risks associated with land banking schemes at the outset. Investors must take legal and financial advice before investing in any such scheme. ASIC’s recent move to wind up the VKK land banking scheme operated by Gem Management Group, with up to $22 million pumped in by around 125 investors, is a case in point. It is not very uncommon to hear of land banking investment scams or scheme collapses. However, very often, developers fail to apprise investors of the risks associated with the scheme. The combination of low cost at entry and the likelihood of significant returns make it an appealing proposition for any investor. In theory, land banking is an exceptionally lucrative investment strategy. Property investors struggling to expand their portfolio in an over-priced market might be advised to invest in a land banking scheme by property developers, real estate agents or the very persuasive property spruikers who run wealth creation seminars, often luring inexperienced investors with the promise of quick wealth generation through property investment. Of course, there is no guarantee whether the area will receive approval for development in the future or what a plot would look like, if and when such approval is received.Īustralian Securities and Investments Commission (ASIC) warns that in order to run a managed scheme, the developer or promoter must have an Australian Financial Services Licence (AFSL) that you can check here. Here, the main point of sale is the potential future value of this conceptual plan. These plots, most often, are sold by concept plans, representing a developed housing block on the land. Under a managed scheme, investors can either buy a plot or the ‘option’ to buy one. In such schemes, a developer pools investor funds to further the development of the land. Land banking is a property investment strategy that involves buying large tracts of undeveloped land to sell at a higher price after development.Ī managed land banking scheme is one where the investors do not have any control over the regular management of their investment.