Den of The Lion Investor

In the current bearish stock market conditions, some people will probably be looking at alternative forms of investments. Land banking might be one of those being considered. I have written a few posts on this topic before but thought I will post some updates following recent developments in the UK.

If you are thinking of buying UK land for investments, remember to look at both the upside as well the downside. The thing about alternative investments is that the exit strategy might not be clear should things go wrong.

Just yesterday, I was reviewing some documents released by the administrator of UK Land Investments (UKLI). If you have not been following the story, you can read more about it here: UK Land Investments Administration.

It was a real messy affair with many land owners trying to recover their money after the company was forced to shut down.

One interesting point that I picked up from the transcript of the meeting of creditors was that the current property market in UK was real bad it was very hard for developers to get any sort of financing. As a result, some developers were not even starting construction of projects on their existing land that had planning permission.

Given such conditions, it would appear that any successful planning permission and sellout would likely take many years.

Another thing worth reading for clients of UK Land Investments was an independent analysis of the UK land sold by UK Land Investments. Apparently, many of them had little or no chance of getting planning permission.

Despite all that is happening in UK, the owner of UK Land Investments, Baljinder Chohan, is still continuing his land banking sales in other countries, one of which is Dubai. He operates there under the company name of UK Capital Investments Group (UKCIG).

Dubai’s authorities are currently checking on UKCIG’s activities of selling plots in the UK.

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Following the decision by the Financial Services Authority (FSA) of UK to shut down UK Land Investments, Lee Manning and Carlton Siddle of Deloitte & Touche LLP, the appointed Joint Administrators of the company, released a report on their findings a few days ago.

Creditors (including plot owners) of the company are advised to read the report and see what are the options available to them. The report is confidential so I do not wish to reveal too much of the details here.

Just for your information, the sole owner of UKLI is a person by the name of Baljinder Chohan. He has a number of companies in other countries that have similar names to UK Land Investments yet they do not have a common corporate parent. In addition, there were a number of loans by UKLI to these other companies which were made on non-commercial terms.

If you happen to have any dealings with these companies, I would encourage you to do the necessary due diligence before making any sort of commitment.

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On 1st April 2008, the Financial Services Authority (FSA) served a petition to UK Land Investments (UKLI) to cease operations.

The hearing date is Monday, May 26, at the Royal Courts of Justice, known as London Companies Court, when the future of the company will be decided.

You can view a copy of the liquidation gazette here.

Hwever, it seems that the company will still continue to operate outside the UK as UK Land Investments International.

I mentioned in my previous post on Jardin Smith International Singapore that I will be elaborating more on UK land banking (or strategic land investment). Other than Jardin Smith, there are a few other companies offering this product in Singapore, two of which are Uk Land International and Profitable Plots.

If you have found my blog because you were doing further research on this topic, good for you. In any investment (especially non-regulated ones), it pays to do your due diligence before you commit any sum of money.

Successful investing is all about managing your risks and if you do not know what your risks are, you stand a higher chance of losing your hard-earned money.

One approach I take when doing any research on a new unregulated investment product is to search google for that topic with the word “scam” added behind. While there are both truths and lies sprouting on the internet and you would be wise to take things you find with a pinch of salt, the internet is still a good starting point for any research.

If you search “Uk land investment scam” in google, you are likely to find a couple of sites discussing about UK land investments. There is one site which stands out: Property Scam, which is dedicated to discussing everything about UK land investments.

From that site, I found out a few things:

• Besides Jardin Smith International, Profitable Plots and UK Land International, there are dozens of land investment companies around the world dealing in UK land investment. The list includes:
  • Hambrook & Greenstock
  • Property Spy
  • Land Investment Association
  • Townfield Land Investments Limited
  • English Land Partnership (ELP)
  • European Land Sales Partnership
    • Exposed by BBC “Inside Out”
  • UK Land Investments Group (UKLI)
    • One of their past auditors, Moore Stephens, discharged themselves
    • UKLI respond to Moore Stephens’ resignation
    • Posted misleading claims on their website about their partners
• A few of them have ceased operations and their investors are left holding the land they bought from them.
• So far, there has not been any documented success of planning permission being obtained by these companies.
• The plot you buy has a huge mark-up of 10-100 times. Read this article for examples. That is how most of the companies has been able to expand so rapidly even though they do not have any success stories yet.

While I cannot ascertain that everything written at Property Scam is true, investing in UK land through a land banking company can be a highly risky affair. However, the returns are very high if planning permission can be obtained.

If you are considering investing, please do your due diligence on the company you are investing with, and only invest with a company you can trust (and with money you can spare). Good luck.

Last Saturday, I was invited to a exhibition held by Jardin Smith International, a local company that sells UK land to investors in Singapore and other countries. Jardin Smith International holds these kinds of events quite frequently, each time at a different venue. In my case, it was held at Ritz Carlton Hotel. I have not been to Ritz before, so it took me a while to find the place.

Upon arrival, I was greeted by a client relationship manager (or salesperson), whose job was to make me feel comfortable and explain to me the concept of how it all works. So I was treated to some free food and there was the usual idle talk before we got down into business.

Having already been to a presentation by another company that sells UK land, Profitable Plots, I was familiar with the concept. Here’s how it works:

1. The company purchases a plot of greenbelt land. This is land that cannot be developed unless it is rezoned (a process known as getting planning permission) by the government.
2. The land is sub-divided into many smaller plots and sold to investors.
3. The company retains 25% of the land so that it is also “vested” along with the investors.
4. The company goes out to apply for planning permission. This process will take many years. As such, this is more of a long term investment. We are told this would take five to ten years at the minimum.
5. Once planning permission is obtained, the value of the land will rise 5-10 times (from your purchase price) and you can realise your gains when the entire site is sold. In Jardin Smith International’s case, 60% of the owners will have to agree before it can be sold.

The reasons why we should investing in UK land (as told by the company) are as follows:

• UK has a housing problem and land will only become lesser and lesser.
• The price of land has been increasing steadily (About 20-fold in the last 15 years).
• 2012 Summer Olympics will be held in London and this will have positive effect on the property market.

The plot on offer by Jardin was being sold for a cool $30,000. An initial deposit of 10% was required and could be paid by credit card. The balance could be paid by credit card and UOB cardholders could even pay by interest-free 12 months installment plans.

I politely told the client relationship manager that I didn’t have the money at the moment and wasn’t interested. She was quite persistent and even suggested I just pay the deposit first. I wasn’t going to do that since I won’t be able to finance the remaining 90%. She was pretty disappointed and made a last ditch effort to ask me for referrals. Of course I would not refer any of my friends to a company that I had not fully researched on.

Tomorrow, I will write about some of the things you need to be aware of if you are investing in UK land.

Besides the land investment, there was also a side booth promoting a property City House, Croydon in London. According to the person I spoke to, he was helping some investment fund sell off their units.

1-bedroom units were available for about 215,000 GBP and 2-bedroom units for 250,000 GBP. 12% of the amount would be payable within 28 days, another 13% due at completion (end 2009) and the remaining 75% can be bank financed by Lloyds.

The rental yields are estimated at 5% and if the units are rental out, it would be able to cover the interest payments. It looked interesting to me but being not very inexperienced in this area (other than the fact that I can’t really afford it now), I decided to give it a miss.