http://www.businesstimes.com.sg/sub/...40691,00.html?

Published May 27, 2011

Landbanking warrants a closer look


A COLLECTIVE landbanking scheme is about a group of investors holding on to small plots of land with the hope of later selling them en bloc to a developer at a much higher price. This sounds straightforward enough. After all, this is exactly what real estate developers also do. But things may not be so simple for uninitiated retail investors who may be seduced by cheap offers in land schemes - usually in far off locations.

The United Kingdom wisely declared any collective investment scheme a 'regulated activity' for the purposes of their Financial Services and Markets Act 2000. This means a landbanking company may be operated in the UK only by a person who is either authorised or exempt from the provisions of the Act. The Act further provides that an agreement made by a person in contravention of this rule is unenforceable and any sums paid to him may be recovered together with compensation for any loss suffered. The UK's strict enforcement of this regulation has brought order to the landbanking scene there.

So it was a matter of concern when it was discovered that some 1,400 investors have been left in the lurch by a Singapore landbanking company, Profitable Plots. Investor watchdog the Securities Investors Association (Singapore) or Sias has called on the directors of the company to have a dialogue with its investors to explain what is happening to their investments, which some estimate to total over $50 million. The company has stopped operations since the Commercial Affairs Department started a probe into its activities almost a year.

The Monetary Authority of Singapore (MAS) does not have any special rules to oversee the landbanking business, but did place Profitable Plots on its Investor Alert List - the aim being to provide a warning to consumers that if they chose to deal with an 'unregulated person', they would not have any protection under laws administered by MAS. In other words, caveat emptor. As this business remains unregulated, MAS's stance means that the onus is on potential investors to check out the history of the company, its directors as well as the properties being offered for collective investment. But is this enough? Does Singapore need to regulate landbanking? What must not happen is to inadvertently allow Singapore to be turned into a safe haven for foreign operators whose businesses may not be welcome in their home jurisdictions.

Conservative estimates indicate that some 10,000 Singaporeans and foreigners have invested in schemes of a few landbanking companies incorporated here. None of the investment land is anywhere near Singapore. As pointed out by Sias, the Singapore brand name is being used to convince both people here and overseas of the legitimacy of such investment schemes.

Singapore authorities must consider the danger that faith in Singapore brand may be shaken if something goes awry as a result of the free-for-all regime that landbanking operations can avail of here.