ENG 
ខ្មែរ
CHN
Key risks for land banking
What are the key risks?
a) It could turn out be a scam
Investing in land is not always equivalent to investing in solid ground. Some land banking schemes have turned out to be scams.
Investors should be cautious of land banking when the land is being sold in a location with which they are not familiar. It is also useful to check if warnings have been issued to caution investors.
b) What if plans to develop the land are derailed?
Consider what factors could derail the land banking firms’ plans to develop the land plots as planned.
Land banking schemes generally project that the value of the land would increase exponentially when permission is obtained from the relevant authorities to develop the land, be it for housing or other purposes. This may sound promising. But if permission to develop the land is not obtained, the value of the land plots would be affected. Do also note that in some countries, “green belt” or agricultural land are often protected from development by planning law. Selling these land plots would be very difficult, especially at a profit.
Also, even though the company may project that the value of the land would increase in, say, four or five years time, this is only a projection and ultimately still depends on an acceptable offer coming in to buy the land.
Once an offer does come in, the sale may be conditional on a majority (for example 60%) of unit holders in the land parcel agreeing to sell. So when an offer comes in, there will be a vote. You may be willing to sell but if the majority wants to hold out for a higher price, your money will be tied in for longer.
If no offer comes in, your money could also be stuck in the scheme for longer than the projected period.
It is also useful to find out what could happen if the firm is unable to sell the land plots within a certain time frame. How would the timeline for developing the land be affected? Drawing up development plans and developing a piece of land takes time, at least a few years. What could happen to your investment if the firm does not have financial resources to see through the project?
c) What if you need cash urgently?
For land banking, you must be prepared to wait. If you find that you need cash urgently before the land banking operator sells the land to say a developer, you may find it difficult to sell your land plot to other parties.
d) Foreign exchange risks
Land banking propositions are usually marketed to overseas investors. If you purchase a land plot in a foreign country such as Canada, USA or the United Kingdom, you would be exposed to foreign currency risks.
Compiled by Hong Ty
