What You Need To Know About Unregulated Land Bank Schemes
Are The Land Banks Classified As Scams?
The land banks happen to be sold frequently by different marketing companies, and are advertised as good SIPP investments, yet the FCA decided to design a page that warns about these activities.
The Land Banking practices involve the purchase of what appears to be appealing land with a hope that a planning permission will be approved as well as finding a buyer to buy this land, which increases the value of the land in order to obtain a profit.
Land is typically purchased by the larger companies in the green-fields which means never built-on or the brown-field sites, where the site previously had a building on it, or a building is in a state of disrepair. This land is then usually divided up into “plots” by a company and then sold-off individually. The buyers are usually the singular investors along with other firms, such as the Cadnam Plot, close to the New Forest.
There were a variety of investors which saw this type of land as a lucrative opportunity, where they invested with a SIPP (Self-Invested Personal Pension) or with hard-cash, with the hopes that this land increases in its value, where it could later be sold for a profit.
About The Unregulated Land Bank Schemes
Even though there are several land banks which are situated in the UK, which makes them appear as a safe option for a would-be investor, there are many which are not regulated by the FCA, which stands for the Financial Conduct Authority. The FCA acts as the watch-dogs for every regulated financial service in the UK. In general, this is an unregulated label which is associated with a few risks that your advisor could have skimmed passed.
On the page dedicated to the Land Banking Schemes on the FCA website, they raised concerns pertaining to the amount of the land banks which were reported as situated on nature conservations, green-belt land or other types of protected areas which would make it extremely complex for any investor to be granted with planning permissions, which means that many investments become trapped in owning land which will probably never become profitable.
The FCA went onto add that the Land Bank schemes could be costing UK investors around £200m, with most that we suspect through the work we have done through TheYEC, which involve a large portion of the pension funds, which make the retirement options very difficult for people involved when the investment fails to be purchased or make a profit.
It is important to know that not all the Land Banks are scams, yet here is a checklist to prove the problems which might have been dismissed by either your financial adviser or your marketing company, both who have probably been paid an attractive commission to get you interested in these types of deals.
The Suitability Checklist For Land Bank Scams
The Location Of The Land Bank
Where is the land situated? Is the land located inside a National Park (and yes, this really happens)? Is the land on a green-belt, or on a nature-conservation? If you have answered yes to these questions, do you think there are any chances of a buyer applying for a planning permission successfully or buying this land?
There are minimal doubts that the person who sold you a plot would have been involved on the upside of this plot, yet was this actually truthful? How much does “other land” make up in this area? Would it be likely that someone would be interested in buying this plot and making it into something successful?
Was the land advertised well? Are you able to find any information of them attempting to find a good price for this land online? Could this have an impact on the likelihood of selling the land?
Has the company who is working on selling your land kept you on a string in the way of telling you they are always so close to closing a sale? If you already made the investment years before, you could have been profiting on something more lucrative and a bit safer.
In most cases, investors invest in the land bank deals through SIPP, which means they are probably being charged by their SIPP administrator for this privilege. If this is the case with your investment, what was the initial transfer-value in association to your SIPP? And what is its worth now, a few years down the line?
Should The Land Bank You Invested In, Been Sold To You- Suitability And Unregulated Investments (UCISs)
The UCIS is known as collective investment schemes that are unregulated, which means it is a scheme which collectively takes money in order to fund an investment, where the FCA has no jurisdictions over. There are also no Ombudsman services or FSCS compensation made available if this type of investment fails.
Considering what we have previously mentioned, it comes as no surprise that that in many cases the Land Banks are classified as UCISs, where they are not able to match the FCA rules associated with topics like liquidity which means to quickly sell in markets that are vibrant for selling and buying.
Yet many would have taken their advice from IFAs (Independent Financial Advisers) in the stages of an investment process. The IFA could have earned as much as 15% on the investment, of the value of the investment in commission, yet they still would have made sure the investor was suitable for an UCIS.
The suitability checks will ensure that you happen to be:
A High-Net Worth Individual
This means you earn more than £100k a year or you have £250k in net-investable assets which does not include your pension or your home.
A Sophisticated Investor
Meaning you have extensive experience and knowledge when it comes to investing in funds, which are preferably in the unregulated investments.
A Positive Attitude Towards Risks
You have an understanding about any risks involved, and you still feel comfortable to take these on.
If you do not match up to these profiles, then it is possible that you were mis-sold!