Land Banking

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Residential property developers are expected to escape a new tax measure which prohibits deductions for expenses associated with holding vacant land.
The measure was included in the "tax integrity" initiatives in Tuesday's budget, as the federal government turned its attention to land-banking in the housing affordability consideration.
The move to abolish expenses raised concerns in the development industry that its costs for holding land could rise as a result.
However, Property Council of Australia chief executive Ken Morrison told Fairfax Media on Wednesday he had clarified the situation with the Treasurer's office.
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<div class="cq-article-content-media section">"So long as there is an operating business being undertaken on the land then this measure won't apply," Mr Morrison said.</div>
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<div class="related-quotes section">"In the vast majority of cases for development companies that will be the case, so this is not a big bogey man for the industry that some have speculated."</div>
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According to Treasury, the initiative will raise $50 million in revenue for the government over the forward four years estimates period.
"This is an integrity measure to address concerns that deductions are being improperly claimed for expenses, such as interest costs, related to holding vacant land, where the land is not genuinely held for the purpose of earning assessable income," it said in the budget papers.
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"It will also reduce tax incentives for land banking, which deny the use of land for housing or other development."
The measure is set to take effect from July 1 next year.
Treasury said the new measure will apply to land held for residential or commercial purposes.
"However, the 'carrying on a business' test will generally exclude land held for commercial development," it said.
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<div class="cq-article-content-media section">Further detail will emerge in legislation at the aim of targeting of individuals who had chosen to hold land and claimed expenses for a development that didn't eventuate.</div>
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<div class="cq-article-content-media section">Before the PCA's clarification was obtained, Frasers Property Australia chief executive Rod Fehring suggested the new tax measure that prohibits deductions for expenses associated with holding vacant land, "reflects a lack of understanding" from the federal government. <div class="cq-article-content-paras section">
"From our point or view, we can't ignore it, we have to be exempted from it, or we will have to change our business model, which is to find ways not to own land and develop it … that's the capital-efficient thing to do," Mr Fehring told Fairfax Media during Frasers Property first-half results presentation in Singapore.
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<div class="cq-article-content-media section">"It is not viable for development purposes. I don't see how adding another tax to land and housing products, that land is raw material for, will make housing more affordable."</div>
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"We pay land tax, we pay development contributions, we pay state infrastructure contributions, we pay stamp duty, we pay foreign purchasers surcharge, we pay rates, need I go on?" Mr Fehring said.
"I am not enthusiastic, it is highly counter-productive … supply will be further constrained."
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Land banking tax measures not likely to affect major residential property developers

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ASIC has started legal action in the Federal Court in Melbourne to wind up companies associated with two land banking schemes operated in Victoria and to disqualify Michael Grochowski and Ian Edward Stephens from managing corporations. 
The two land banking schemes are known as:
<ul>
<li>Hermitage Bendigo (above, formerly Acacia Banks) located at Midland Highway, Bagshot, Victoria  and</li>
<li>Veneziane, located at Brooklyn Park Drive and Balmer Grange, Brookfield .</li>
</ul>
ASIC is seeking to appoint liquidators to four development companies which operated, or were associated with, the land banking schemes.  The development companies are:
<ul>
<li>Brookfield Riverside Pty Ltd (ACN 159 111 047);</li>
<li>Bilkurra West Pty Ltd (ACN 169 059 143);</li>
<li>Bilkurra South Pty ltd (ACN 602 374 390); and</li>
<li>Gillies Road Pty Ltd (ACN 163 866 724).</li>
</ul>
ASIC is also seeking to appoint liquidators to Project Management (Aust) Pty Ltd (ACN 151 902 126) (PMA) and is seeking orders disqualifying Mr Stephens and Mr Grochowski from managing corporations for such period as the Court considers justified. 
ASIC alleges that PMA, Mr Stephens and Mr Grochowski were involved in the operation of the land banking schemes and that bank accounts relating to the development companies were operated by PMA under the control of Mr Grochowski.
ASIC is concerned that the development companies and PMA are insolvent and that it is just and equitable that the companies are wound up. 
ASIC's investigation suggests that the development companies raised in excess of $15 million from unsophisticated investors by the sale of options to purchase land or off the plan contracts of sale in land proposed to be developed by the development companies.
However, the development companies have never owned the land.  
ASIC's investigation also suggests that attempts by the development companies to purchase the land have failed and that the developments are therefore unable to proceed or to be completed.
ASIC is also concerned that monies raised from investors have been transferred between a number of companies without any apparent concern for obligations that might be owed to those investors and that the majority of funds raised from investors have been dissipated.
This proceeding is part of ASIC's wider and ongoing investigation into land banking schemes. 
ASIC has already taken action in respect of:
<ul>
<li>Midland Hwy Pty Ltd and Bilkurra Investments Pty Ltd operating the Hermitage Bendigo scheme; and</li>
<li>Foscari Holdings Pty Ltd operating the Foscari scheme in respect of land at 99 Palmers Road, Truganina.</li>
</ul>
Land banking is a real estate investment scheme involving the acquisition of large blocks of land by a promoter or developer of the scheme, often in undeveloped rural areas, who then offer portions of the land to investors.
Land banking companies typically promote the investment with representations of high potential returns if the land is developed, or if plans for rezoning and development are finalised.  Investors either purchase a lot in the land, or acquire an option to purchase a lot of land in an unregistered plan of subdivision. 
Investors should be vigilant when investing in such schemes and seek independent legal and financial advice.  Investors should also assess their risk tolerance for this type of scheme.  ASIC notes that many of the promoters of land banking schemes offer access to lawyers and financial advice, but is concerned that those advisors may not be independent.
These types of investments may constitute a managed investment scheme and/or a financial product.  Developers and promoters should therefore hold an Australian Financial Services Licence and register these schemes with ASIC.
ASIC's winding up application is to be listed by the Court for a hearing to be held after June 2018.
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ASIC seeks windup at land banking Hermitage Bendigo and Veneziane, Brookfield 

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ASIC has obtained orders from the Federal Court to wind up an illegal investment scheme known as the VKK Investments Unit Trust (VKK scheme), as well as the trustee and operator of that scheme, Gem Management Group Pty Ltd (Gem).
The principal asset of the VKK scheme is land located at 64 Hutton Road, Keysborough in Victoria (below).
Around 125 investors invested a total of approximately $22 million into the VKK scheme, which Gem operated since May 2010 on the expectation that the land at Hutton Road would be re-zoned, which has not occurred.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/4/23/keysb.jpg" alt="">
ASIC's investigation identified that:
<ul>
<li>the VKK scheme is a managed investment scheme which has not been registered, as required under the Corporations Act; and</li>
<li>Gem, which does not hold an Australian financial services licence, had also breached the Act by operating an unregistered managed investment scheme.</li>
</ul>
A number of investors in the VKK scheme were represented in the proceedings brought by ASIC and made submissions in support of ASIC’s application to wind up the VKK scheme and Gem. 
Robert Woods and Salvatore Algeri of Deloitte Touche Tohmatsu have been appointed as joint liquidators of Gem and joint liquidators and trustees of the VKK scheme. The liquidators will have management of the VKK scheme and the land at Hutton Road.
ASIC Deputy Chair Peter Kell said, "Today the Federal Court took action to wind up an unlawful managed investment scheme and its operator. The ruling is a warning to those involved in unlawful schemes, including those that involve land banking, that ASIC will move to protect investors and have these unlawful schemes wound up."
"Land banking schemes have been a particular focus of ASIC. ASIC reminds investors considering investing in  land banking schemes they are often unregulated and that investors have little protection if something goes wrong", Mr Kell said.
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Federal Court orders wind up of illegal Keysborough land banking investment

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ASIC has started legal action in the Federal Court in Melbourne to wind up a land banking scheme known as the Realestate Equity Investment Trust (REIT) and an associated company, Timeline Project Management Pty Ltd (Timeline).
The REIT scheme owns land located at Flinders Avenue in Lara, Victoria.
ASIC understands that at least 82 investors have invested a total of at least $800,000 into the REIT scheme and that, since 2013, investors have been making payments in respect of their investment to Timeline.
Lotus Pty Ltd (in liquidation) was the responsible entity which managed the REIT scheme until 21 September 2016 at which time its Australian financial services licence was cancelled by ASIC for various compliance breaches.
It was placed into liquidation on 14 December 2016, on the application of a creditor.
ASIC alleges that REIT is operating as a managed investment scheme in circumstances where it has no responsible entity and no reasonable prospects of obtaining one.
The matter is listed for hearing at the Federal Court in Melbourne on 4 August, 2017 at 9.30am.
These proceedings are part of ASIC's wider and ongoing investigation into land banking schemes.
1. What steps has ASIC taken?
Following an investigation, ASIC started proceedings on 25 July, 2017 in the Federal Court of Australia to wind up:
<ul>
<li>Realestate Equity Investment Trust (ARSN 094 623 515) (REIT), and</li>
<li>Timeline Project Management Pty Ltd (ACN 145 830 851) (Timeline).</li>
</ul>
If ASIC's application is successful then liquidators will be appointed to REIT and Timeline.
2. Why did ASIC issue the proceedings?
REIT is a land banking scheme which owns land at 490 Flinders Avenue, Lara, Victoria, which was intended to be rezoned and developed.
ASIC understands that at least 82 investors have invested at least $800,000 in the REIT scheme.
Lotus Securities Pty Ltd (Lotus) was the former responsible entity of REIT.
On 21 September 2016, ASIC cancelled the Australian financial services license (AFSL) of Lotus due to a number of compliance concerns including failure to lodge financial statements for Lotus (for the years 2014 onwards) and REIT (for the years 2012 onwards). 
Lotus was not permitted to act as a responsible entity following the cancellation of its AFSL and no new responsible entity has been appointed.
Lotus is now in liquidation, having been wound up by the Court on 14 December 2016, on application by a creditor. 
ASIC understands that, since June 2013, investors have been making payments in respect of their investment to a bank account in the name of Timeline.
Timeline is not (and has never been) the responsible entity of REIT.
ASIC commenced these current proceedings to protect the interests of investors in the REIT scheme given ASIC’s allegations in the proceedings that, amongst other matters:
<ul>
<li>REIT has been operating despite it not having a validly appointed responsible entity as required under the Corporations Act 2001 (Cth) (the Act)</li>
<li>the REIT scheme appears to be unviable given that there has been no progress in developing the real estate investments of the fund since the initial fundraising</li>
<li>financial statements for REIT have not been prepared or lodged with ASIC since 2012, and</li>
<li>the interests of investors appear to be prejudiced due to the fact that they are still paying monies apparently into the scheme via a bank account held by Timeline.</li>
</ul>
3. What orders does ASIC want the Court to make?
ASIC is seeking orders from the Court to wind up, and to appoint liquidators to, each of REIT and Timeline.
The application is listed before the Court on 4 August, 2017.
4. Will investors get a refund?
ASIC is not seeking compensation or refunds for investors in these proceedings. 
However, if the Court orders the winding up of REIT and Timeline there may be a return to creditors as part of the liquidation process.
The realisation of assets and any distribution to investors will be undertaken by the liquidators appointed by the Court.
5. What rights do investors have?
ASIC is unable to advise investors as to any rights that they may have in relation to ASIC's application.
If investors wish to be represented at the hearing of ASIC's application, then they should seek legal advice.
Investors may also wish to seek independent legal and/or financial advice in relation to their investment in the REIT scheme.
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ASIC acts to wind up a land banking scheme

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ASIC has commenced proceedings in the Federal Court of Australia to wind up a land banking scheme known as the VKK Investments Unit Trust (VKK scheme), as well as the trustee and operator of the scheme, Gem Management Group Pty Ltd (Gem).
The VKK scheme owns land located at 64 Hutton Road, Keysborough in Victoria.
ASIC understands that around 125 investors have invested a total of approximately $22 million into the VKK scheme.
Gem has operated the VKK scheme since May 2010.
ASIC alleges that the VKK scheme constitutes a managed investment scheme which has not been registered, in contravention of the Corporations Act 2001(Act).
ASIC also alleges that Gem, which does not hold an Australian Financial Services licence, has also breached the Act by operating an unregistered managed investment scheme.
ASIC is seeking to appoint liquidators to both the VKK scheme and Gem.
Gem and the VKK investors will have the opportunity to make submissions to the Court in relation to ASIC's application.
These proceedings are part of ASIC's wider and ongoing investigation into land banking schemes. 
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ASIC takes action to wind up land banking scheme and its operator

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GUEST OBSERVATION
Land banking is a real estate investment scheme that involves buying large blocks of undeveloped land with a view to selling the land at a profit when it has been approved for development.
You may think land banking is a way to expand an exisiting investment portfolio or get into the property market, however, there are some things you should be aware of before you hand over your money. Here we explain how land banking works and the risks you take with this type of investment. 
<h2>What is land banking?</h2>
Property developers usually buy land, divide it into smaller blocks and offer it to investors. Investors either buy a plot of land or buy an option to purchase a plot of land. These are often know as 'option agreements'. The option agreement is usually triggered when the land has been approved for development by the local council.
Land banking schemes may be managed investment schemes or involve the sale of a financial product. If this is the case, there are strict legal requirements that must be met.
<h3>Concept plans</h3>
Developers often sell the plots of land from 'concept plans'. These plans are not approved subdivision plots and only offer a view of what the land could look like if it is approved for residential zoning and sub divided for development in the future.
If the land is ever developed, there is no guarantee the plot of land an investor initially buys will be the same plot of land they get in the future.
<h2>
<a id="how" name="how" href=""></a>How land banking is sold to investors</h2>
ASIC is concerned that investors who get involved in land banking schemes are not aware that the schemes are often unregulated and investors have little protection if something goes wrong.
Potential investors often hear about land banking at property spruiking or investment seminars, where they are described as 'a get rich slow option'. Glossy brochures and presentations are used to persuade investors that land banking is a cheaper way to get into the property market than through buying an investment property.
Property spruiking events and investment seminars are often high pressure environments and participants can be rushed into making a decision. People are usually not given enough time to consider the investment carefully or to receive independent advice before they sign up.
For more information about the sales tactics used at these events, see <a href="https://www.moneysmart.gov.au/investing/investment-warnings/investment-seminars" target="_blank" title="Investment seminars">investment seminars</a>.
See <a href="https://www.moneysmart.gov.au/borrowing-and-credit/borrowing-basics/avoiding-sales-pressure" target="_blank" title="Avoiding sales pressure">avoiding sales pressure</a> for our tips on resisting the hard sell.
<h2>
<a id="wrong" name="wrong" href=""></a>What can go wrong in a land banking scheme</h2>
<h3>Development approval</h3>
There is real potential that investors can be misled by developers about the prospects of rezoning or developing the land.
Some developers offer land as an investment without knowing for certain that they will get council authority to develop it. In some cases developers have also failed to tell investors that there are restrictions on how the land can be developed.
If development approval is not granted, investors are left with an unsaleable investment that is likely to be worth less than they originally paid.
<h3>Scheme collapse</h3>
It may take many years and lots of money to get planning approval. Over time, ongoing legal and planning costs can eat into the funding for the development and may lead to the development company becoming insolvent. If this happens, option holders may lose all the money they've invested.
A number of land banking schemes have collapsed in Australia and overseas without the promoted development ever proceeding.
<h3>Option agreements</h3>
Some land banking schemes have option agreements with a 'sunset clause' that is triggered 20 or 25 years from the date of the agreement if the land fails to be rezoned or developed. If this occurs, investors may lose the initial option fee they paid if there's not enough money to repay all option holders.
When investors enter into an option agreement they may also have to pay legal fees, commission payments and payments to the development company that may not be refunded if a sunset clause is triggered.
ASIC is also concerned that option holders may be misled into purchasing options in a 'concept plan' and not an officially approved plan.
<h3>Investment scams</h3>
Investors may be scammed by developers who are offering options in land that they do not own.
See our tips on spotting an <a href="https://www.moneysmart.gov.au/scams/investment-scams" target="_blank" title="Investment scams">investment scam</a>. If you suspect you've come across a scam, please <a class="external-link" href="https://www.asic.gov.au/about-asic/contact-us/how-to-complain/report-misconduct-to-asic/" target="_blank" title="Report misconduct to ASIC">report it to ASIC</a>.
<h3>Legal or financial advice</h3>
Many promoters of land banking schemes offer to refer you to lawyers, accountants or financial advisers. Be aware that any people you have been referred to may have a pre-existing business relationship with the promoter or developer. The developer may receive a kickback for referring you to these other professionals.
It's also possible that the lawyer, accountant or adviser you've been referred to has a personal interest in the property development.
For more information about this practice, see <a href="https://www.moneysmart.gov.au/investing/financial-advice/financial-products-and-sales-incentives#one" target="_blank" title="One stop shops">one stop shops</a>.
If you are thinking about investing in a land banking scheme, you should find your own independent financial or legal adviser.
See our <a href="https://www.moneysmart.gov.au/investing/financial-advice" target="_blank" title="Financial advice">financial advice</a> section for information about finding and working with a financial adviser.
<h2>
<a id="check" name="check" href=""></a>Checks to do before investing in a land banking scheme</h2>
If you are considering investing in a land banking scheme, we strongly recommend that you contact the local council where the land is located to ask them if the land will ever be released for development.
A land banking promoter may try to persuade you that the council is not aware of all potential developments. You should question the promoter's motivation for telling you this.
<h3>Is it a managed investment scheme?</h3>
If the developers and promoters are legally running a managed investment scheme, they must have an <a class="glossary-link" href="https://www.moneysmart.gov.au/glossary/a/australian-financial-services-licence-afsl" target="_blank" title="Australian Financial Services Licence (AFSL)">Australian Financial Services Licence</a> (AFSL) that allows them to run the scheme.
Many land banking schemes are set up to avoid the characteristics of a managed investment scheme - at least on paper.
The scheme may be a managed investment scheme if:
<ul>
<li>investors do not have day-to-day control over managing their investment</li>
<li>the scheme involves pooling investor funds</li>
<li>the funds are used to further the development.</li>
</ul>
You can check ASIC Connect's <a class="external-link" href="https://connectonline.asic.gov.au/RegistrySearch/faces/landing/ProfessionalRegisters.jspx?_afrLoop=1117254997455584&amp;_afrWindowMode=0&amp;_adf.ctrl-state=ldag3jave_4" target="_blank" title="ASIC's professional registers">Professional Registers</a> to see if the developer and the promoter hold an AFSL.
<h3>Is the scheme registered?</h3>
In most cases, it is illegal to offer units or interests in what is actually a managed investment scheme unless the scheme is registered with ASIC. You can check <a class="external-link" href="https://connectonline.asic.gov.au/RegistrySearch/faces/landing/SearchRegisters.jspx?_afrLoop=1616527880298708&amp;_afrWindowMode=0&amp;_adf.ctrl-state=3cofxv6f2_13" target="_blank" title="ASIC connect">ASIC Connect</a> within the 'organisation and business names search' to see if a scheme is registered with ASIC. Registered schemes will have an Australian Registered Scheme Number (ARSN) that can be searched.
See <a href="https://www.moneysmart.gov.au/investing/investment-warnings/illegal-managed-investment-schemes" target="_blank" title="Illegal managed investment schemes">illegal managed investment schemes</a> to help you work out if the managed investment is legal.
Remember, if the scheme is unregistered or the operators of the scheme are unlicensed, you will have little protection if things go wrong..
<h3>Read the PDS</h3>
If the investment is a managed investment scheme you must be given a product disclosure statement (PDS). A PDS must include information about the scheme's key features, fees, commissions, benefits, risks and complaints handling procedure.
Make sure you read the PDS. If you don't understand the investment, get independent financial or legal advice.
Do not confuse the PDS with marketing material used to sell the investment such as brochures or information sheets.
<h3>Is the investment right for you?</h3>
You should also consider whether investing in a land banking scheme suits your investment goals. See invest smarter for our tips on matching an investment with your needs and objectives.
Land banking may seem like an easy way to get into the property market, however, there are many risks associated with this type of investment. Make sure you research and understand what you're getting into before you hand over your money.
For more information from ASIC's Money Smart website, <a href="https://www.moneysmart.gov.au" target="_blank">click here</a>.
 
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Property 101: Land banking and property investment schemes

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ASIC's proceedings in the Federal Court of Australia against companies associated with Jamie McIntyre and the 21st Century Group continue in relation land banking schemes alleged to be unregistered managed investment schemes
The latest court hearing refused an application by the McIntyre respondents to vary earlier undertakings which would have enabled the fourth respondent (Secret Valley Estate Pty Ltd) to settle the purchase of land.
ASIC alleges that the land banking schemes are unregistered managed investment schemes and that the 21st Century Group companies and Mr McIntyre have been unlawfully carrying on an unlicensed financial services business.
The five schemes are promoted and advertised as:
<ul>
<li>Botanica, located at 805 Archer Rd, Kialla, Victoria 3631</li>
<li>Secret Valley Estate, located at  955, Old Sydney Road, Bylands, Victoria 3762</li>
<li>Oak Valley Lakes Estate &amp; Resort, located at  124 Booth Road, Brookhill, Townsville, Qld 4816.</li>
<li>Bendigo Vineyard Estate &amp; Resort, located at  51 Andrews Road, Bendigo, Victoria 3551</li>
<li>Melbourne Grove Estate, located at  1491 Dohertys Road, Mount Cottrell, Victoria 3024</li>
</ul>
Jamie McIntyre, the CEO of 21st Century Property released his Secret Valley development land banking project last November.
Set 45mins from Melbourne CBD, it was known as Secret Valley in Wallan.  
The Secret Valley Estate in Wallan was described as 258 acres of <a href="https://21stcenturyeducation.com.au/louharty/land-banking-melbourne/" target="_blank">"breath taking, beautiful landscape and picturesque views of the Macedon Ranges."</a>
Land banking Melbourne options in Secret Valley started at $25,000 for a 1 acre superlot.
 <img class="aligncenter size-full wp-image-884" src="https://21stcenturyeducation.com.au/louharty/wp-content/uploads/2014/11/land-banking-melbounre-secret-valley.png" alt="land banking melbounre secret valley" width="299" height="422" style="font-size: 12.16px; line-height: 1.3em;">
 
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