What is land banking to you? Do your homework!

Landbanking — an investment class of its own

by Lim Siew May of theedgemalaysia.com on Friday, 18 May 2012 02:52

LANDBANKING schemes have been making headlines for the wrong reasons. Last year, the UK’s financial services regulator, the Financial Services Authority (FSA), reported that investors in the country lost an estimated £200 million after putting their money in landbanks that were never intended for development.

Some unauthorised firms, adds the FSA, have disappeared. In Malaysia, Edgeworth Properties (M) Sdn Bhd closed down when its parent company, Edgeworth Properties Inc, a Canadian landbanking firm, filed for liquidation. The Malaysian firm had collected about RM76.5 million from Malaysian investors from 2007 to 2011.

Is landbanking a legitimate investment scheme, then? There isn’t a definite answer. Pauline Yong, director of financial consulting firm Sigma Wealth Sdn Bhd, says the regulators are not clear about such collective investment schemes.

“Unlike unit trust funds, landbanking schemes don’t fall under the purview of regulators such as the Securities Commission and Bank Negara Malaysia. This makes it difficult for investors to seek recourse.” The Companies Commission of Malaysia (CCM) did not respond to Personal Money’s request for comments.

In June 2009, the CCM issued compound notices to Edgeworth Properties (M) Sdn Bhd for contravening Section 91(1) of the Companies Act 1965, which says “a person shall not issue or offer the public any interest, unless an approved deed is in force upon the issuance of the interest”. A month later, the company resumed business operations with clearance from the CCM.

Another landbank issuer, Walton International Property Group (M) Sdn Bhd, which was investigated by Bank Negara in 2009, also did not respond to our request for comments. Walton, which clarified its business operations after the probe, continues to sell land in Canada and the US.

Lawrence Seow, head of financial planning at VKA Wealth Planners Sdn Bhd, believes the landbanking investment concept itself is a “good idea”, although certain issuers “did not do a good job”. VKA Wealth Planners partners Walton, offering the latter’s land to its clients.

“In 2009, we were concerned about the legitimacy of Walton’s landbanking scheme too,” says Seow. “We did a thorough due diligence on the company, and ran through their financial accounts with their chief financial offer, who is based in Hong Kong. They are not indebted and were transparent about their figures. They were also cooperative and answered all our questions.”

Seow, who has allocated a “small portion” of his personal funds in Walton International’s landbanking scheme for diversification purposes, acknowledges that landbanking is “an investment class of its own”. He agrees with Yong that as the collective investment scheme does not fall under any regulatory body’s purview, it is a grey area.

“Landbanking is certainly not for everybody. The entry price is high, as each investment unit [from Walton International] costs at least US$10,000 (RM31,300). Plus, the investment is not liquid,” Seow says. “You’d also need to have knowledge of the land’s location, development plans and the economy of the country you’re invested in.”

This article appeared in Personal Money in the March 2012 issue.

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