Investing in land can be a profitable investment option. However, depending upon at which point you enter the investment, i.e. at which point in the land’s development process and what the land is zoned to permit, will dictate the level of risk involved and the potential returns that can be earned.
Land investment can be divided into 2 categories that carry more or less risk: Land Banking is a riskier form of investment whilst Development Land offers a safer investment option.
At Landcorp International, we only introduce development land investment opportunities where the land has a clear path to development.
The development company works closely with the local authorities to ensure planning permissions are approved and the land can be developed. Development land will be zoned to permit development and this zoning will inform what can/cannot be developed on the land and this will be reflected in the Conceptual Master. See The Development Process for more information.
Land Investment – Conceptual Overview
Below is a summary of the key differences between development land investment and land banking:
Development Land
- The investment land is owned by a development company with a vested interest in the land’s development
- The land has been zoned (classified) for a specific purpose by the local government
- The sales objective is to raise additional development capital as well as generate profits for both the Development Company and the Investors
- Investors share the risk and profits with the land owner
- Trustees are put in place to protect investors
- A development project is identified
- The majority share of the land is retained by the developer
- The investment period is normally between 3 and 5 years
- Various exit options with first stage exit following approval of the Master Plan and the sub-division into individual building plots
- Definite, foreseeable tenure
- Possible risks: The Master Conceptual Plan will need to be ‘scaled down’ to obtain approval
- A developer is committed to the land’s development and continuous value adding process
- The application of full planning permission is in process
- The development company has the responsibility of making their own application to develop the project
- A specific development project is identified according to the land zoning
- The zoning of the land is KEY to determining whether there is a strong chance planning permission will be approved
Land Banking
- The land owner could be any third party, a tax haven country, real estate agency or sales company with no or little interest aside from turning a profit
- The land may be raw land, green land, greenbelt or farmland
- The sales objective is pure profit
- Investors take all the risk of the land
- No trustees or they play a minimal role
- No development planning
- No majority shareholder as most of the land, between 75%-90%, is sold to individual investors
- The investment period is usually between 5 and 10 years on the upside or no exit on the downside
- Exit is upon approval of zoning or full planning permission if granted
- Unforeseeable or unpredictable tenure
- Possible risks: rezoning is never obtained
- There is no one shareholder committed to the future progress of the land
- The application of the land conversion is unknown
- Development is usually outsourced or not identified
- Development project is uncertain
- Success is on the HOPE that the land will be rezoned so that development will eventually reach the land
