Plot thickens with land bank companies

Buy a piece of land at a bargain price then build on it – it’s a simple plan for idealistic property owners. But both in the UAE and UK, winning building permission is a highly convoluted process with no guarantee of success.

Land banking companies have enjoyed a poor reputation in the UK. Jim Watson / AFP

Complete with brightly coloured pictures of Big Ben and the Houses of Parliament, red Routemaster buses and old-fashioned pillar boxes, a handful of stands at Cityscape Abu Dhabi each year promise a dream of London living.

Offering villa-sized plots of land for as little as £10,000 (Dh54,470) to £15,000 when the average house price in the UK’s capital currently stands at about £460,000, it does seem almost too good to be true.

As always there’s a catch. Land banking firms, as they have become known in Britain, sell plots of land – often in rural parts of the UK or green belt land – without planning consent for as little as £10,000 an acre.

This often means that when an investor has bought the land he can do nothing with it apart from to hope that it is one day re-zoned for some other use (see box).

Land banking companies have a poor reputation in the UK, with a handful having been forcibly wound up by the authorities after being exposed as scams.

In 2012, the FSA secured a £32 million high court judgment against three land banking companies, Countrywide Land Holdings, Regional Land and Plateau Development & Land, and banned owner James Kenneth Maynard from selling land for business purposes in the UK.

“This decision sends a message to other land banks that we will not sit by and let them con investors out of their money. Indeed we have also started court actions against others that we believe have been involved in Maynard’s scheme,” said Tracy McDermott, acting director of enforcement and financial crime at the FSA, at the time.

“Anybody investing in land should always have it independently valued to check its worth. Furthermore, if you are ever sold land as an investment with the promise of fabulous returns, and on the basis that someone else will manage it for you as part of a wider site, you should check the firm is authorised by us.”

The consumer watchdog Which? says: “We believe the land banking model can never work. Dividing land into individually-owned plots makes it less likely to be built upon, as no developer would want to deal with hundreds of separate owners.”

But with overseas interest in UK property increasing rapidly since the global financial crisis, companies offering similar services are exhibiting in the UAE and across the GCC.

Bob Clarke, the managing director of Herald Land, runs one of the longest established UK land banking firms in the UAE.

His company has been operating in the UAE for the past six years and has so far not won planning consent on a single one of the 13 sites it has broken into smaller plots and sold off to more than 500 clients.

Mr Clarke admits that many land banking firms operating in the UAE and GCC may be involved in questionable practices.

“There are too many companies in Dubai and Abu Dhabi that can open up tomorrow morning, give advice and they have no controls over their staff, no controls over what people will say. And the trouble is that these staff may up and leave in two or three months time and that doesn’t help an investor,” he says.

“When we went to Cityscape in Qatar last year there were two young guys from Saudi Arabia selling some land in south London somewhere. They didn’t even know where south London was. They had never seen the land,” he adds.

“One of the reasons why this particular type of land in the past has had a bad name is that you’ll get people buying a plot of land in the middle of Norfolk and they will sell it to people outside the UK. It’s very easy to mislead people.”

Instead, Mr Clarke says his company is making serious attempts to win planning consent for its clients – a long and complicated process which, even if it is successful, is likely to take many years – but which would increase the value of the plots by a multiple of 10 if the gamble pays off.

“Land banking has been done for years and years in the UK. It’s been done by farmers, royalty, financial institutions and developers,” he says.

“There are stages you have to go in. From day one when you buy a piece of land you have to hold on to it and do nothing for a good two or three years. The minute it is transferred to our name we get a section 4 put on us by the local authority. That says you can’t do any kind of planning without permission. We know that anyway. It’s standard.”

“The next thing you get in certain areas is groups springing up saying that they don’t want houses built in the neighbourhood. So we give it a good two to three years to calm down. When you go for consultations or initially sounding councils out you get a flat ‘no, no, no, no’. But the minute you start putting paperwork together and submitting infrastructure [plans] and everything they have to take you seriously because that costs money.”

Mr Clarke says that his clients are all informed about the risks involved in buying land without planning consent and his staff are fully trained concerning issues regarding the UK planning system as well as Rera-compliant.

However, a quick internet search reveals a number of posts, purportedly from angry clients, all of whom have chosen to remain anonymous.

When asked what checks are made on exhibitors to ensure that they are legitimate and that their sales are ethical, Cityscape organisers say that they ensure that any exhibitor is operating within the laws of this country.

“We are working closely with our government partners such as the Abu Dhabi Department of Municipal Affairs and the Abu Dhabi Urban Planning Council in Abu Dhabi, as well as Dubai Land Department and more specifically Rera in Dubai to collect any information from our exhibitors that they may require,” says Wouter Molman, the director of Cityscape Group.

“If it would turn out that any of the clients doesn’t hold the relevant licence or permits to participate in our events or showcase a specific project, we would follow any instructions given by the relevant authorities,” he adds.

“It is worth noting, however, that the majority of our clients have been exhibiting with our events for many years, and are in fact very reputable companies that have successfully delivered some outstanding projects across the UAE and beyond.”

Lay of the land to win consent

In the UK, planning consent has been required in order to be allowed to build on land or to change the use of land or buildings since the 1940s. This means that farmland usually costs a fraction of the price of land which has been granted planning approval to be developed as housing.

Land which has been designated as “green belt” in the UK has been left as farmland to prevent urban sprawl. The land is officially protected and any development is often extremely controversial in local communities.

But under the National Planning Policy Framework under very special circumstances small amounts of green belt land can be granted planning consent if the benefits of development would outweigh the harm caused to the green belt.

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