Property investment schemes
Land banking is a real estate investment scheme that involves
buying large blocks of undeveloped land with a view to selling the
land at a profit when it has been approved for development.
You may think land banking is a way to expand an exisiting
investment portfolio or get into the property market, however,
there are some things you should be aware of before you hand over
your money. Here we explain how land banking works and the risks
you take with this type of investment.
What is land banking?
Property developers usually buy land, divide it into smaller
blocks and offer it to investors. Investors either buy a plot of
land or buy an option to purchase a plot of land. These are often
know as 'option agreements'. The option agreement is usually
triggered when the land has been approved for development by the
Land banking schemes may be managed investment schemes or
involve the sale of a financial product. If this is the case, there
are strict legal requirements that must be met.
Developers often sell the plots of land from 'concept plans'.
These plans are not approved subdivision plots and only offer a
view of what the land could look like if it is approved for
residential zoning and sub divided for development in the
If the land is ever developed, there is no guarantee the plot of
land an investor initially buys will be the same plot of land they
get in the future.
How land banking is sold to
ASIC is concerned that investors who get involved in land
banking schemes are not aware that the schemes are often
unregulated and investors have little protection if something goes
Potential investors often hear about land banking at property
spruiking or investment seminars, where they are described as 'a
get rich slow option'. Glossy brochures and presentations are used
to persuade investors that land banking is a cheaper way to get
into the property market than through buying an investment
Property spruiking events and investment seminars are often high
pressure environments and participants can be rushed into making a
decision. People are usually not given enough time to consider the
investment carefully or to receive independent advice before they
For more information about the sales tactics used at these
events, see investment seminars.
See avoiding sales pressure for our
tips on resisting the hard sell.
Read the ASIC media release about the
promotion and sale of five land banking schemes.
What can go wrong in a land
There is real potential that investors can be misled by
developers about the prospects of rezoning or developing the
Some developers offer land as an investment without knowing for
certain that they will get council authority to develop it. In some
cases developers have also failed to tell investors that there are
restrictions on how the land can be developed.
If development approval is not granted, investors are left with
an unsaleable investment that is likely to be worth less than they
It may take many years and lots of money to get planning
approval. Over time, ongoing legal and planning costs can eat into
the funding for the development and may lead to the development
company becoming insolvent. If this happens, option holders may
lose all the money they've invested.
A number of land banking schemes have collapsed in Australia and
overseas without the promoted development ever proceeding.
Read the ASIC media release about a
failed land banking company.
Some land banking schemes have option agreements with a 'sunset
clause' that is triggered 20 or 25 years from the date of the
agreement if the land fails to be rezoned or developed. If this
occurs, investors may lose the initial option fee they paid if
there's not enough money to repay all option holders.
When investors enter into an option agreement they may also have
to pay legal fees, commission payments and payments to the
development company that may not be refunded if a sunset clause is
ASIC is also concerned that option holders may be misled into
purchasing options in a 'concept plan' and not an officially
Investors may be scammed by developers who are offering options
in land that they do not own.
See our tips on spotting an investment scam. If you suspect you've
come across a scam, please report it to ASIC.
Legal or financial advice
Many promoters of land banking schemes offer to refer you to
lawyers, accountants or financial advisers. Be aware that any
people you have been referred to may have a pre-existing business
relationship with the promoter or developer. The developer may
receive a kickback for referring you to these other
It's also possible that the lawyer, accountant or adviser you've
been referred to has a personal interest in the property
For more information about this practice, see one stop shops.
If you are thinking about investing in a land banking scheme,
you should find your own independent financial or legal
See our financial advice section for
information about finding and working with a financial adviser.
Checks to do before investing in
a land banking scheme
If you are considering investing in a land banking scheme, we
strongly recommend that you contact the local council where the
land is located to ask them if the land will ever be released for
A land banking promoter may try to persuade you that the council
is not aware of all potential developments. You should question the
promoter's motivation for telling you this.
Is it a managed investment scheme?
If the developers and promoters are legally running a managed
investment scheme, they must have an Australian Financial Services Licence
(AFSL) that allows them to run the scheme.
Many land banking schemes are set up to avoid the
characteristics of a managed investment scheme - at least on
The scheme may be a managed investment scheme if:
- investors do not have day-to-day control over managing their
- the scheme involves pooling investor funds
- the funds are used to further the development.
You can check ASIC Connect's Professional Registers
to see if the developer and the promoter hold an AFSL.
Is the scheme registered?
In most cases, it is illegal to offer units or interests in what
is actually a managed investment scheme unless the scheme is
registered with ASIC. You can check ASIC Connect within the 'organisation and
business names search' to see if a scheme is registered with ASIC.
Registered schemes will have an Australian Registered Scheme Number
(ARSN) that can be searched.
See illegal managed
investment schemes to help you work out if the managed
investment is legal.
Remember, if the scheme is unregistered or the operators of the
scheme are unlicensed, you will have little protection if things go
If you have any concerns, contact ASIC.
Read the PDS
If the investment is a managed investment scheme you must be
given a product disclosure statement (PDS). A PDS must include
information about the scheme's key features, fees, commissions,
benefits, risks and complaints handling procedure.
Make sure you read the PDS. If you don't understand the
investment, get independent financial or legal advice.
Do not confuse the PDS with marketing material used to sell the
investment such as brochures or information sheets.
Is the investment right for you?
You should also consider whether investing in a land banking
scheme suits your investment goals. See invest smarter for our tips on matching
an investment with your needs and objectives.
Land banking may seem like an easy way to get
into the property market, however, there are many risks associated
with this type of investment. Make sure you research and understand
what you're getting into before you hand over your money.
Last updated: 17 Nov 2015