Beware land investment scams
Bruce Barnard, 53, a registered mental health nurse from Norwich, was surprised to get a phone call out of the blue one February morning from a company he'd never heard of called Towers Property Development. The "polite and plausible" woman was touting a land investment opportunity in Worthing, Surrey.
"I'm really not one for investment as I'm quite risk-averse", says Bruce, "so I wondered why they were interested in me. But she said land was a good investment because of the housing shortage, and the new Localism Bill would give community groups the right to bypass planning restrictions and build on greenfield land.
"She added profits could be as high as 500% over three to five years."
The Brighton-based company followed up the cold call with some glossy brochures showing computer-generated images of new-build homes on the investment plots of land it was selling.
"I did some background research on the web and it all seemed legitimate", says Bruce, who admits that he didn't carry out any searches to check whether the company really did own the land. "So I paid a deposit of £1,295 - a tenth of what my plot was costing - and agreed to pay the balance in two weeks."
Bruce began to get cold feet, however, when he started noticing negative comments on consumer internet chat forums about 'landbanking' - a process by which unscrupulous firms sell land to investors on the assumption that planning permission for new development will be granted.
In most cases, it isn't and often never could be.
"Towers Property Development didn't pretend it had planning permission," says Bruce. "But my research convinced me the chances of it getting any as a result of the Localism Bill were very slim. It seemed like a sort of legal scam - and it turned out it was actually charging me around 25 times what the plot of land was probably worth."
Bruce called the company and spoke to office manager Jonathan Fields, threatening to report Towers Property Development to the Trading Standards Authority and Serious Fraud Office if it didn't return his deposit. He eventually received £1,000 in settlement.
Bruce was one of the lucky ones - he got out before it was too late. Scores of other investors have had their fingers badly burned.
Last year the Financial Services Authority (FSA) closed down five firms that had ripped investors off to the tune of £42 million. Unfortunately, very little of the money is ever recovered.
The FSA is investigating a further 20 firms and estimates that total losses through landbanking fraud top £200 million.
Jonathan Phelan, head of unauthorised business at the FSA, says: "We've even come across one high-net-worth individual who lost £3 million through this type of fraud."
Detective chief inspector Dave Clark, of the City of London Police Economic Crime Directorate, warns: "I've never seen an investor walk away from one of these scams with anything other than a loss. We're currently investigating around six or seven such companies where hundreds of investors collectively stand to lose £2 to £4 million."
Clark believes the people behind these landbanking firms are very well-organised and clever criminals. "They're often upfront about the fact they're not authorised by the FSA, but claim they don't need to be", he says.
"This supposed honesty gives them a bit of legitimacy. When we raid their offices we find very professional scripts, using the latest government speeches or new building initiatives to make them sound plausible."
The hardline spivs will attempt to sell land that doesn't even exist or which could never be built on because it has no access roads or drainage, or is in a Site of Special Scientific Interest, adds Clark.
"This is blatant misrepresentation and fraud by serious organised crime gangs," he says. "They're unscrupulous. In one room we raided there was a poster on the wall for the film Boiler Room [about share fraud]. These guys are shameless."
Towers Property Investment's website declares it offers "UK land - low risk and high rewards", and goes on to explain the process: "Towers Property Development Ltd. retains the largest portion of every site and will be vigourously [sic] pursuing the right to build. The remaining plots are allocated to our clients."
After buying what it considers to be suitable plots of land ripe for development, Towers says it tries to achieve 50% local agreement to help it get "re-zoning and the right to build" - after which, it then has to find a developer willing to buy the land. Until it surmounts both of these hurdles, investors can forget about getting a return on their money.
But nowhere on the website does it say the firm is authorised by the FSA, give details of the land it supposedly owns, or provide examples of successful development projects. Instead, you have to request a login username and password by phone or email first to gain access to this information.
Moneywise rang the quoted telephone number and asked to speak to Jonathan Fields about the company. We were told by the male receptionist, who refused to give his name, that Fields would not be the most appropriate person to speak to as he "only dealt with office supplies - envelopes and that sort of thing".
When we asked to speak to the firm's managing director, the receptionist claimed not to know who this was because he was "just temping". He said someone would ring us back. No one did.
The confusing point for investors and the FSA is that simply advising people on the buying and selling of land does not have to be authorised.
But if the company is engaged in landbanking - managing the land and applying for planning permission on behalf of a group of investors - then it counts as a collective investment scheme (CIS) and has to be authorised.
Spotting the difference between the two can often be very difficult.
Companies will often argue the toss and claim not to be running a CIS.
However, Phelan says: "The key questions to ask are who's managing the land and who's applying for planning permission. If the investment company is, on behalf of lots of investors, then it's clearly a CIS."
Covering its back
Towers Property Development would seem to fall into the CIS category as it is the one allegedly applying for planning permission on behalf of its investor freeholders.
The company claims: "Our team of planners, developers and land specialists research very carefully when looking for the next strategically located piece of land. Once re-zoning is achieved, the value of your land rises dramatically. Conservative estimates set this at 300% to 600% in five or six-year holds."
But then it cleverly covers its back in the terms and conditions, saying, among other things: "We are land dealers and claim no specialist knowledge or expertise as to the future prices of land and the likelihood of land being reclassified. We do not offer advice or speculate as to predicted land rises."
The terms and conditions go on to say that it will not even guarantee that the price of the land sold to investors bears any relation to its true value.
There are a few legitimate companies out there. However, Phelan says: "At the moment, there's only a handful of authorised landbanking companies operating in the UK. So the chances are that if you're approached by a land investment company it won't be authorised."
Investors - you have been warned.
How does the typical landbanking scam work?
A company will buy up a large plot of land, often cheap agricultural land that cannot currently be built on, then divide it up into lots of smaller plots to sell to 'investors'.
Cold-calling people and using hard-sell techniques, the spivs claim the land is bound to get planning permission for any number of spurious reasons and turn people's heads with talk of astronomical profits once the land is sold on to property developers.
Some blatantly lie and say the land has already received planning permission when it hasn't and is never likely to.
The small strips of land are usually sold for reasonable-sounding amounts of between £10,000 and £20,000. In reality, they are often worth a tiny fraction of that.
This land, advertised as ripe for development, can often have little chance of receiving planning permission because it doesn't have road access, or is in a Site of Special Scientific Interest or protected green belt area. In one case, the FSA came across a piece of land sold that was on a 45-degree slope and never likely to be built on.
Typical victims tend to be busy 40-plus professionals who are quite trusting of plausible-sounding investment companies. They don't have the time to do all the necessary background checks and take things at face value.
The fraudsters often employ 'openers' and 'closers'. The opener will make the first contact. They'll be polite, friendly and plausible, reading from a carefully designed script.
Once the investor has fallen for the spiel and paid the deposit, the closer will then ratchet up the sales pressure and become aggressive if the investor doesn't respond to time-limited 'bargain deals' requiring further investment.
When planning permission isn't granted - if it has ever been applied for - investors are left with virtually worthless plots of land and no way of getting their money back.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
This is an umbrella term for an organisation, usually unlicensed by the financial authorities, which uses forceful, persistent and highly aggressive telephone sales techniques to sell unlisted or non-existent securities to private investors. In the majority of cases, the shares being sold are worthless and the boiler room vanishes, leaving the investor out of pocket. Although they boast impressive UK addresses, the firms operate from boiler room “hotspots”, such as Spain, Switzerland, Dubai, Japan, Bermuda or the US, so they are outside the remit of the Financial Services Authority.