Investing in land overseas used to be the domain of the extremely wealthy, but landbanking companies have put an end to that.
The main attraction of investing in land overseas is the hefty payouts investors can expect to reap, with some firms promising returns of around 20 per cent.Such firms buy large parcels of undeveloped land that they feel has development potential. They keep part of the land for themselves and divide the rest into smaller plots for sale to individual investors.
The hope is that the land later attracts the interest of developers. The company then sells the plots on behalf of individual investors.
Companies like Edgeworth Properties offer sites in Western Canada while Profitable Plots deals mainly in land in Britain. The minimum investment for a plot varies but usually ranges from $10,000 to $15,000.
The main attraction of these projects is the hefty payouts investors can expect to reap, with some firms promising returns of around 20 per cent.
'Land is a hard asset that will always appreciate in value with time and development,' said Mr Michael Yap, vice- president (Asia Pacific) of Edgeworth Properties.
Edgeworth selects land that has the prerequisites for sustained economic and population growth and is situated next to developed neighbourhoods, added Mr Yap.
Landbanking companies typically give customers an estimate of how long they have to wait before the land is bought. This can be from three to seven years.
However, there is no guaranteed figure and it is possible that customers may have to wait longer.
Most landbanking companies provide detailed information on the land they are offering so investors can get a fair idea of what they are buying.
But there are also risks involved.
'The first thing that comes to my mind is liquidity - landbanking does not provide much liquidity,' said Mr William Cai, director of GYC Financial Advisory.
'As there's a lack of liquidity, it is hard to say if investors are overpaying for the piece of land in the first place.'
Mr Cai also cited exchange rate fluctuations as a risk in this kind of investment.
Landbanking is also unregulated, which could be a problem if disputes arise between the company and individual investors.
Despite the possibility of getting their fingers burnt, response from Asians has been 'very encouraging', said Mr Yap.
Edgeworth's land lots are sold in Singapore, Malaysia, Taiwan and the Philippines, with Singaporeans constituting about 63 per cent of buyers.Source: Straits Times, 26 April 2009