Land Banking Schemes — How to Spot a Scam
Land Banking Schemes – How to Spot a Scam
What are they?
A typical land banking scheme involves the scammer buying a field on the edge of a village and subdividing it into “building plots” which are sold off at prices way below that market rate for genuine building plots, typically just a few thousand pounds. The lure is that they say the land is likely to be zoned for development and that, when this happens, there will be a huge increase in value. The practice has been around for many years but, despite widespread publicity and media exposure, it hasn’t died out and innocent people are still falling victim to them.
Why haven’t land scams been stopped?
There is nothing illegal in selling off small parcels of land, so it’s hard to stamp out the practice. The fraud comes into play only when the hope value of the land is exaggerated. The Financial Service Authority is active in pursuing land scammers, but as fast as they are closed down, new ones pop up.
How do you spot a land scam?
Many of them don’t advertise but instead rely on phone calls and high-pressure selling tactics, often emphasising the need for quick action. Generally, they steer you away from using a solicitor to handle the deal, arguing that it’s so cheap that you don’t need the added expense. “You don’t need a solicitor to buy a car, do you? So why bother with one for a £10,000 building plot?”
Many of the people caught out by land scammers have no intention of ever building a house but are simply lured in by the prospect of making easy money. But potential selfbuilders are also at risk and a number have been tricked into buying into land banking schemes.
How do you protect yourself?
It’s not difficult. Just by being aware that land banking schemes exist and how they work is usually enough. Land scams tend to work best on the unsuspecting, so if you are on the lookout for them, you are far less likely to be duped.
As a point of principle, when buying a building plot or a development opportunity, always seek advice from independent parties — i.e. someone not acting for the seller. If the plot doesn’t come with planning permission attached, you should check out the viability of the scheme with your local authority planning department. Ask the simple question: “Is this plot ever likely to obtain planning permission?”
Not all opportunities without planning permission are scams. Sometimes houses or plots are sold with some degree of hope value — i.e. that you may get permission for something extra to what is presented. This can make is difficult to distinguish between problematic plots and out-and-out scams. However, a conversation with the local planner is usually all it takes to weed out the truth.
What can do you do if you’ve bought a dud plot?
Very little. There is no compensation available and there is little point in taking out proceedings against the sellers because they tend not to be there long enough to pursue through the courts. Whatever you do, don’t be tempted to pay them any more money to help get planning permission granted: it’s just another con.
What to do if you are contacted by a land scammer?
If you suspect the deal on offer, then try and find out who they are, obtain contact details and pass them on to the Financial Conduct Authority who are active in trying to close down fraudulent land banking schemes.
You can read more information about Land Banking Schemes here.