Over 55s tempted to supplement their retirement incomes with quick profits from speculative land banking schemes have lost around £200 million to scammers.
Fraudsters typically prey on the over 55s because they know they often have ready cash available in savings to fund their crooked schemes.
Now, the government’s Insolvency Service is warning potential investors to watch out for fraudulent landbanking schemes as the latest figures show the number of bogus firms offering the investments are on the increase.
In four years, the Insolvency Service has closed down 49 landbanking companies that have conned investors out of at least £30 million, while 39 companies have been wound up with losses of £13.4 million.
Investigators reckon that landbanking schemes have cost investors £200 million in total.
Landbanking is the term for a small plot of undeveloped land – often in the planning protected Green Belt – that is offered for sale at an inflated price by falsely claiming the area is earmarked for future development that will increase the price.
The salesman is tapping in to the greed of the buyer who expects the land to soar in value to provide a quick profit in the short term, when the truth is the land will never gain planning permission and is effectively worthless to builders.
The Insolvency Service has seen landbanking complaints soar by 33 per cent in just two years and the number of complaints under investigation has doubled.
Landbanking fraudsters have operated in the UK for many years, but the numbers have picked up since the credit crisis.
In 2009, nine cases were accepted for investigation by the Insolvency Service. This number jumped to 11 in 2010 and 16 so far in 2011.
The typical victim profile built by the Insolvency Service is:
• 67 per cent over 50 years old, with 44 per cent over 60. The oldest was 85-years-old
• 60 per cent of victims are men
• The average loss adds up to £23,000 – ranging from £5,000 to £300,000
Victims rarely get their money back as the schemes are not protected investments under the Financial Services Compensation Scheme.
Jonathan Phelan, the Financial Service Authority’s head of unauthorised business, said: “We’ve seen plots sold on a site of special scientific interest, one on a 45-degree slope, and another without any access to it. None of them stood a chance of getting planning permission and therefore none of them stood a chance of realising the ‘hope value’ that was promised by the company that sold the land. “Most of the money placed with these companies disappears and to make matters worse, as the firms are not authorised by the FSA. As land banks often snare new investors by cold calling them, the lesson remains: if you are called out of the blue with the offer of land that is ‘guaranteed to rocket in price’ – be very suspicious indeed. “This problem calls for a coordinated response and together we are tackling the threat posed by land banks. Working alongside the FSA, Land Registry and the Police, the Insolvency Service has been an active partner in combating land banks by closing them down and preventing more people from becoming victims.”
From investigating landbanking cases, the Insolvency Service also has a good idea of how the scammers work.
First contact is generally by a ‘cold call’ by email or telephone, followed by a hard sell from a salesman the opportunity to make a quick profit is only available for a short time.
The sales patter is always around the potential profit that the deal offers.
The Insolvency Service urges anyone receiving the calls should contact them with the details and should not sign any contracts or part with cash.
Robert Burns, head of investigations at The Insolvency Service, said: “It’s clear that landbanking scams are designed to target the more vulnerable investor, many of them trusting pensioners who are eager to see a greater return on their savings or pension lump sum than they could ever expect from traditional savings and investments. Tragically this often leads them to rashly invest in what seems to be, on the face of it, safe ‘get-rich-quick’ schemes.”
“We need to alert people to the warning signs and the fact that if a scheme seems ‘too good to be true’, that’s usually because it is.
“The public needs to be aware that land sold in these schemes is nearly always sold without planning permission and promises that planning is likely or in place, is a tell-tale warning signal. A check with the council planning office should provide a quick answer on the prospects of planning permission. Many potential buyers, including those now being targeted from overseas, might not be aware of this.”
Landbanking scams are often sophisticated frauds with no other aim than grossing the most cash from victims as quickly as possible.
Crooks often forge official papers to dupe investors in to giving up their hard-earned cash.
Mike Westcott-Rudd, of the Land Registry, said: “We know that landbanking companies have sometimes used forged letters or documents carrying a Land Registry stamp as an ‘official guarantee’ that either their plot of land already has, or will, gain planning permission.
“Land Registry is so far unaware of any landbanking schemes where planning permission has subsequently been granted. It is typical for plots of land sold in landbanking schemes never to be eligible for planning permission. Those looking to invest should remember that Land Registry is not involved in the planning process at all.
“Land Registry is working with The Insolvency Service, the FSA and the Police in a joint effort to raise public awareness and combat landbanking scams.”
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