Australian regulator cracks down on land bank schemes

Australia’s main financial regulator is seeking to wind up two land banking schemes as part a crackdown on the real estate investment vehicles.

Australia2-343x220Land banking schemes typically involve the acquisition of large blocks of land by a promoter or developer, often in undeveloped rural areas, who then offer portions of the land to investors.

The companies behind the schemes usually promote the investment with representations of high potential returns if the land is redeveloped, or if plans for rezoning and development are finalised.

Investors then either purchase a lot in the land, or acquire an option to purchase a lot of land in an unregistered plan of subdivision.  The option agreement is triggered at a time that the necessary development is approved by the local council.

A number of land banking schemes around the world have collapsed without the promoted redevelopment ever proceeding.

Criminal prosecutions have also occurred in circumstances were investors have been misled as to the prospects of rezoning and planning approval being obtained for the land, or in instances where the land was not held.

Two firms hit

The Australian Securities and Investments Commission (ASIC) said it has begun proceedings in the Federal Court of Australia to freeze assets and wind up companies associated with two land banking schemes operated in the state of Victoria.

It named the schemes as Hermitage Bendigo (formerly Acacia Banks) and Foscari.

ASIC said it investigation suggests that investors may have invested in the land banking schemes on the basis of misleading representations and that option agreements entered into by investors in Hermitage and Foscari purportedly allow for monies invested in the schemes to be used for any purpose whatsoever, and need not be used to progress the two land banking schemes.

“Investors should be vigilant when investing in such schemes and seek independent legal and financial advice. Investors should also assess their risk tolerance to this type of scheme and fully understand tax implications of investing through a self-managed superannuation fund,” the regulator said.

“ASIC notes that many of the promotors of land banking schemes offer access to lawyers and financial advice, but is concerned that they are not independent enough to provide the best advice.”


Source: International Adviser

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