The mechanics of land banking, where large plots of undeveloped agriculture land located overseas are sold to local investors in smaller divided lots, is still being promoted to the general public by supposedly more legitimate land banking companies.

Memories of UK Land International (M) Sdn Bhd, Profitable Plots Sdn Bhd and Edgeworth Properties (Malaysia) Sdn Bhd come to mind; where investors were at the losing end despite being raided by the Companies Commission of Malaysia.

Land banking is an unsuitable investment choice for not so well-to-do investors due to the illiquid nature of the scheme, where the exit period is more than five years without a guarantee that it will ever exit. In the meantime, holding such an investment product does not yield any interim returns.

In less than ideal circumstances and the long-term nature of land banking, the exit may extend indefinitely due to exposure to circumstances like economic downturn cycles, political risk and and change in government policies.

Such land banking investments are deemed unsafe without any secondary market to dispose off the investment, rendering such investments without any value thus as good as worthless.

Any investment must have a secondary market and/or a forced sale value even in times of crisis, but land banking products do not offer intermediate market prices.

Should one need money, there is no avenue to realise the investments, unlike holding other investments such as property, long-dated bonds and shares which will always have a forced selling price no matter what the economic conditions.

Investors have to put full reliance on the developer company to sell the whole plot before anyone can realise their investments. What happens if the company folds? Any potential returns may be minimal in such distress situations.

Land banking companies do provide information on the estimated time period of a number of years for realisation, but then hide behind the clause by stating that the estimate is not guaranteed; meaning it could take more than the maximum estimated time period without giving a standard deviation for a worst-case scenario. So a potential investor may have to wait indefinitely, possibly many decades.

An example is the land banking company stating that the exit is, let’s say, four to six years but then disclaim liability by highlighting that there no guarantee that it will be less than six years and could take longer.

Some investors may diversify risk by putting money into different locations, thinking that it is unlikely that all land banking locations will fail to exit within six years.

But then, after six years, none of them exited. Such a scenario makes such investment bad and unsound despite the fact that the developer may claim that substantial research have been conducted before hand.

Acquired a bad name

Land banking investments have acquired a bad name since they arrived here. Even the more ‘legitimate’ land banking companies have closed their local operational bases and posh offices, leaving poor investors corresponding with offices overseas and with little recourse to press for answers on the status of their investments.

Some land banking companies have disputes ( here and here ) among themselves to the extent of lawsuits in the full glare of the media, giving investor little assurance on their professional conduct of the company.

As in all investments, there are price fluctuations and there may be a possibility that the eventual selling price may be lower than cost or at best lacklustre returns due to the absence of a secondary market pricing, where investors may be better off putting money in the fixed deposits.

The Companies Commission of Malaysia, central bank and the relevant authorities must prohibit any land banking company from ever coming to our shores again as it is not a relevant investment for the public.

Our central bank must investigate the status of past clients’ investments made in prior years to determine if investors have exited to date, for those who have invested in land banking companies.

Should exits and returns from land banking investments after a number of year until today remain negligible, then rightly the central bank must pursue to assist investors in lodging reports, taking class action and exhausting all avenues to recover the investments.

In conclusion, if such overseas land is so good, then why come all the way here to hard sell smaller divided plots when it should be easily sold in their home country?