News that the Financial Services Authority (FSA) has managed to secure a summary judgement in the High Court against the person behind an illegal land banking scheme is a good reminder of the dangers of these scams.
The judgement confirmed that Stephen Watkins, who traded as Consolidated Land UK, sold land illegally to UK consumers. He was ordered to make an interim payment of £920,000, via the FSA, towards compensation for his victims who ‘invested’ over £11m.
Watkins was selling plots of agricultural land in the UK, much of which was subject to planning restrictions. His victims were told by sales people that they would receive help getting planning permission for the plots and also help reselling the land at a profit.
This investment scam is commonly known as ‘land banking’. The term means buying land and holding on to it until it can be resold for a much higher price, usually because it has received planning permission to build residential property.
In the UK, the sale of land does not fall under the control of the Financial Services Authority. However, if land banking becomes a collective investment scheme, it becomes a regulated activity for the purposes of the Financial Services and Markets Act 2000.
This means that land banking can only be operated by a person who is either authorised or exempt under the Act.
If you are considering an investment in a parcel of land, there are several things worth noting in addition to the legality or otherwise of the person operating the scheme.
There are no recorded successful planning permission applications to date for plots sold under land banking schemes in the UK. There have been however numerous examples of considerable investor losses.
When you buy any investment in the UK through someone who is not authorised and regulated by the FSA, you receive no regulatory protection against poor advice.
This means that your investment will not be covered under the terms of the Financial Services Compensation Scheme (FSCS) and you will have no recourse to complain to the Financial Ombudsman Service (FOS).
The people who sell land as an investment tend to be very smooth operators. They have a good story to support the investment credentials of the scheme, including official statistics and verbal promises of ‘fast track’ planning approval.
Land banking is definitely an investment scam to avoid. The plots they sell have a very low chance of ever securing the planning permission they would require to increase in value.
With the land banking company often inflating the price they charge for the land in the first place, there is little prospect of an investor ever recovering their initial investment.
If you are considering an investment, always speak to a professional independent financial adviser and check they appear on the FSA Register before doing business with them.
Photo credit: Flickr/lim_jieyi
