Wednesday, September 10, 2008

Edgeworth & Landbanking

Edgeworth & Landbanking

Sunday Times, 7 September 2008 reported: "Landbanking can be profitable, but it is not a short-term investment and buyers need to do their homework first"

Sounds familiar, but how many Singaporeans really do that? Most of the time, they succumb to greed and the eagerness to show how savvy they are in investing and try to impress sales people how rich they are. When things go wrong or are not up to their expectations, they cry foul and complain that the government is not protecting them from such investments.

So now, landbanking in the investment flavor of the year with 10 firms selling foreign raw land here. After getting burnt by timeshare and other exotic unregulated investments, they are ready to tackle more non-traditional investments like land banking. The big crowd turnouts at landbanking seminars, many of whom are prepared to plonk down S$10,000 and above for land they have never seen or even heard of before the sales presentations is truly amazing. The success of Walton has attracted other landbanking companies to Singapore like Edgeworth. The herd instincts of crowds never ceases to amaze me.

In the article, Straits Times covered Edgeworth's current project in Alberta, Canada which required a minimum investment of C$12,900 (S$17,500). This quote is attributed to a reportedly successful landbank investor who claimed: "Edgeworth also offers insurance and fixed returns and is involved in the development process unlike others like Walton where investors have to wait for third-party offers and depend on market sentiments". Edgeworth says that with its insurance plan, the initial investment sum will be returned within 5 years if the investor wishes to exit. This insurance plan takes effect only when the title deed is issued (some 9 months after the sales and purchased agreement has been signed). Edgeworth has a development arm, Sonex Construction

For those of you who don't know what land banking is ..... land banking is nothing to do with lending money to the banks for big profits. It is not even about property investment. It is investing in raw land which hopefully, one day, some time in the future, most probably 10 years or more will be valuable if it is located in a place which may be in demand in the future due to economic or population needs. The land bank you buy is not in a small country like Singapore which may run out of land for development purposes. It assumes that there is no local URA counterpart which can recycle existing land / cities for urban renewal. It assumes that people are willing to commute long distances from their work places. It assumes that people don't like to live in big, cosmopolitan cities. It assumes that property prices always goes up (just look at the Sub-Prime mess and its effect on property prices and other economic activity). It assumes a lot of other things.

Some of the things landbank investors have to consider before committing themselves financially are:

  1. Illiquid - Investors cannot turn a landbank into cash like stocks and shares and even a property in Singapore. If you put your landbank up for sale, you will have to fork out an administration fee and broking charge of at least 15% of the resale price.
  2. No "Sure-Win" - There is no guarantee you will make money or even get your money back. Everything is dependent on government approval and developers' interest in developing the land.
  3. Uncertainty and Potentially Long Holding Periods - Projects can take 10 years or more to exit, assuming it is an attractive property to would-be investors.
  4. High Tax Rate - Such landbank projects are subject to a high tax rate in the respective countries. In Canada, the capital gains tax is as high as 40%.
  5. Forex Risk - If the SG dollar goes up relative to the North American currencies, your profits will be less than expected.

If you plan to invest in a landbank, be extra careful and check these out throughly:

  1. Firm's Reputation - Don't buy if you have doubts about the company delivering on its promises. As my rich uncle used to say: "Check to see if anything can go wrong with the deal. If something can go wrong, it will"
  2. Land's Location - Apply the same principles as buying a property. It is not what you like that counts, but what value other people (buyers) see in the property.
  3. Economic Conditions - Timing (and luck) determines how fast you can get back your money.
  4. Track Record - How long did it take for previous investors to exit from the investment. Such statistics may be hyped up.
  5. Exit Strategies - Landbanks work exactly like enbloc sales. If someone does not agree to sell, everybody will have to wait for a better offer - which may never come.

The most important thing is there has never been any audited reports on how much money people have made in landbanking.

For those wise cats still sitting on the sidelines, read the following post on landbanking in UK on

Tuesday, September 16, 2008
Comment posted in
Is all Landbanking a scam? Every case in the UK so far has proved to be.

In the UK you can say Land Banking is a scam and the papers often do because there are many thousands of cases of good people losing all their money. There are no audited cases of end plot investors being successful . One of the biggest property booms ever just ended at the end of 2007 in the UK so you would expect that there should have been some plot based land banking success in 2006 and 2007 but there was none.

Many of the Land Banking companies with similar names to those now operating in Singapore offering UK plots have been shut down in the UK by the FSA and are NOT allowed to offer those plots to people living in the UK.

As a Brit let me say this. Imagine I was offered plots on the Padang in Singapore by a UK company that was not allowed by MAS to operate in Singapore. Would you Singaporeans suggest it as a good investment ? It is open land in the middle of the city. Ideal for building on and Singapore is short of building space. Would you expect the Singapore government to protect a stupid foreigner who made that investment ?

Dont invest in what you dont understand.
Posted by Tan Kin Lian at 6:48 AM

It remains to be seen if North American landbanks can deliver what they promise. If Lehman Brothers can go bankrupt, why not landbank companies if property prices continue to slide?

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© - Edgeworth & Landbanking

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