Land banking is the practice of aggregating parcels of land for future sale or development. While in many countries land banking may refer to various private real estate investment schemes, in the United States it refers to the establishment of quasi-governmental county or municipal authorities tasked with managing an inventory of surplus land. In some cases the practice is run as a scam, with land being sold above its market value and its potential for future returns exaggerated.
Municipal land banks in the United States
Definition Land banks are quasi-governmental entities created by counties or municipalities to effectively manage and repurpose an inventory of underused, abandoned, or foreclosed property. They are often chartered to have powers that enable them to accomplish these goals in ways that existing government agencies can not. While the land bank "model" has gained broad support and has been implemented in a number of cities, it is implemented differently so as to best address the needs of the municipality, the state and the local legal context in which it was created.
History Land banking originated in the 1920s and 1930s as a means of making low-priced land available for housing and ensuring orderly development. The period of deindustrialization in the United States coupled with increased suburbanization in the middle of the 20th century left many American cities with large amounts of vacant and blighted industrial, residential, and commercial property. Beginning in the early 1970s, municipalities began to seek solutions to manage decline or spur revitalization in once prosperous city neighborhoods. The first land bank was created in St. Louis in 1971. While additional municipalities continued to adopt them at a trickle it wasn't until the mid 2000s that land banks became viewed as a tested, reliable, and accepted model and experienced widespread implementation – particularly after the success of the Genesee County Land Bank. In 2009, the Department of Housing and Urban Development issued a report embracing land banks as a best practice model for municipalities dealing with the 2008 financial crisis and the ensuing foreclosure crisis.
Investment land banking by country
United Kingdom Land banking developed in the late 17th Century in the British Isles and was previously the preserve of the landed gentry or real estate developers such as Nicholas Barbon. Many reputable commercial building companies engage successfully in land banking for future building projects. Companies also purchase land sites and easily divide them into smaller plots, then offer these plots for sale to individual investors. This relatively new practice in the UK does not fall under the control of the Financial Conduct Authority. Many people are wary of this form of investment as many plot-based land banking companies have failed or been closed down. There are currently no audited successes recorded for UK plot-based land banking despite the UK having gone through a major property boom between 2002 and 2007. A land banking scheme that is a Collective investment scheme is a "regulated activity" for the purposes of the Financial Services and Markets Act 2000 and, according to section 19(1), may only be operated in the UK by a person who is either authorised or exempt. Section 26 provides that an agreement made by a person in contravention of this is unenforceable and any sums paid to him may be recovered together with compensation for any loss suffered. After recent FCA enforcement of this regulation, many companies selling UK land plots have moved outside of the European Union and only offer land plots to non-UK residents who are not protected by FCA regulations.
Companies offering land banking plots in the UK Since the changes in the land Registration Act, a number of companies offering UK land plots as investments have been formed. Typically this land is greenbelt, nature conservation, flood plain, agricultural or protected land unsuitable for development. There are no recorded successful planning permission applications for plots sold under such collective investment schemes. There have been considerable losses recorded by investors in UK land plot investment schemes. A large number of British companies offering UK land plots have failed or been shut down by the Financial Services Authority (FSA) or other authorities. Some companies have now moved offshore after an FSA investigation. Some companies now offer UK land plots from locations such as Dubai or Singapore where the local authorities do not regulate such activities, or are not aware of the high risk nature of the investment. In June 2010 the Monetary Authority of Singapore (MAS) issued a warning on land banking plot schemes warning they may be scams with a specific focus on companies offering land from the UK and Canada.
Sales methods
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