This is where you invest in a plot of land that has not yet been granted permission for development. The idea is that the value of the land will leap when planning permission is granted, leaving you to make a profit when selling to developers.
These schemes are high risk. They could even be scams, and even if they’re not, the land may never be granted planning permission.
If you do want to choose this way of investing, you should contact the local council pertaining to the area and see if the land is on the way to being released for development.
If it is structured as a ‘collective investment’ then it must be registered with the FCA – you can search online to see if it is. Be aware that many land banking schemes are not registered and should be avoided.
How do you make a return?
Assuming the scheme is legitimate then you may well be able to sell the land for more than you paid, if the land increases in value. If it is released for development, then there is every chance this will happen.
Like with other investments in property, you can hold your shares in a tax-free ISA.
What are the risks of investing in land banking schemes?
There’s a much higher risk of fraud with this type of investment than others. You may be investing in land that can never be developed, regardless of what you’re told by the seller.
This could be because it’s either protected, or exposed to industrial pollution that makes it hazardous for residential development.
If you invest through a scheme that isn’t authorised by the FCA, then you have no back up if things go wrong. You won’t be able to go to the Financial Ombudsman or the Financial Services Compensation Scheme.