Land banking is investing in undeveloped land where the return depends on the land rising in value, or on it being rezoned or approved for development, and Moneysmart says it can be high risk, with little protection if something goes wrong. How far ASIC’s rules reach depends on how the scheme is set up: a regulated managed investment scheme has legal requirements and must give investors a product disclosure statement, while an unregulated one may leave fewer protections.
General informationThis page summarises Moneysmart’s guidance on land banking, not advice about any land, scheme or agreement. Moneysmart’s land banking page is the place to check, and the local council is the place to ask about zoning.
How a scheme is put together
Moneysmart describes how these schemes usually work. Set out in order, it runs like this.
The land is bought and cut up
A developer buys land, divides it into smaller blocks and offers them to investors.
The investor takes a plot, or an option on one
An investor either buys a plot outright or buys an option to purchase one later. Moneysmart calls these option agreements.
Approval sets the option off
The option usually comes into effect once the local council approves the land for development.
The profit is expected at the end
The plan is to sell the land at a profit, particularly once it has been rezoned or approved.
Moneysmart says these schemes may be promoted at property spruiking events or investment seminars, which can be high-pressure. People can be hurried into deciding, without enough time to weigh the investment or to get independent advice before signing.
An option agreement, drawn as a line in time
An outline, not a real scheme. Each point is drawn from Moneysmart’s description of how option agreements work and fail; the terms of any real agreement differ, and it is the document that counts.
- SigningThe investor pays for an option. One of Moneysmart’s checks is knowing whether what is being bought is land or only an option to buy land, who owns the land, and what rights apply if the development never goes ahead.
- WaitingPlanning approval can take many years and a great deal of money, and the legal and planning costs along the way can wear down the money set aside for the development.
- Approval, if it comesCouncil approval is usually what triggers the option.
- The sunset dateSome agreements carry a sunset clause that ends them if the land has not been rezoned or developed by a set date. Option holders can then lose their fee if there is not enough money to repay everyone, and legal fees, commissions and other payments may not be refunded.
Four ways Moneysmart says it can go wrong
| The risk | What Moneysmart describes | What it can mean for the investor |
|---|---|---|
| The land is undeveloped | Developers can mislead investors about the chances of a rezoning. Some have offered land without knowing whether council would approve development, and some have not disclosed restrictions on developing it. | Without development approval, the investment may not be saleable, or may be worth less than was paid. |
| Schemes can collapse | Long, costly approval processes can push the operator into insolvency. Moneysmart says a number of schemes in Australia and overseas have collapsed without the promised development going ahead. | An option holder can lose everything they put in. |
| Options can expire | A sunset clause can end the agreement if the land is not rezoned or developed in time. | The option fee may be lost, and other payments may not come back. |
| Advice may not be independent | Promoters may send investors to lawyers, accountants or financial advisers they already do business with, and that adviser may have a personal stake in the development. | Moneysmart’s answer is to get independent legal or financial advice. |
Where ASIC’s rules reach a land bank
Moneysmart’s question is whether the investment is a managed investment scheme. A regulated scheme has to meet legal requirements meant to protect investors, including clear information about the risks, the fees and the investor’s rights.
If it is a managed investment scheme, the investor must be given a product disclosure statement (PDS), and Moneysmart lists what it must cover: the scheme’s key features, fees, commissions, benefits and risks, and how complaints are handled. On ASIC’s licensing page, issuing interests in a managed investment scheme is an example of dealing in a financial product, and operating a registered scheme is a financial service of its own; both sit under the AFS licence.
If the investment is not regulated, Moneysmart says there may be fewer protections when something goes wrong. That is the same gap the first guide describes for property bought directly: the less of it sits inside ASIC’s rules, the less help there is afterwards.
The checks Moneysmart lists
- Ask the council. Moneysmart suggests contacting the local council to ask whether the land is likely to be rezoned or approved for development, rather than relying only on what the promoter or agent says, and, if the two accounts differ, asking questions and getting independent advice.
- Know what is being bought. Who owns the land, whether it is land or an option, and what happens if the development stalls; Moneysmart pairs this check with getting independent legal advice first.
- Ask whether it is regulated. Whether it is a managed investment scheme decides which protections apply.
- Read the PDS, if there is one. Moneysmart says to read it, and to get independent financial or legal advice if the investment is still unclear.