Land banking involves strategically buying large blocks of undeveloped but potentially valuable land for property development purposes. It’s important to look for land that has development potential in high-growth areas. This land is often not yet approved by the relevant local council for development. However, once the development application has been approved, the land can be:
[readmore]
Alternatively, undeveloped land that isn’t yet approved for development can also be subdivided and options to buy can be made available to investors. The option to buy becomes activated once there is council approval for the land’s development.
Land banking investment is a common strategy for developers. It allows land to be sold at a profit when it’s rezoned for development. The land could be rezoned as residential property, commercial property or mixed use.
The most important factors are the location of the land and its suitability for high-quality development that will generate investor demand. You should always thoroughly check your land’s suitability for the development project you have in mind before you buy it. For example, does it have the right soil conditions to make it easy and cost-effective to build on?
Buying large tracts of land potentially can have both advantages and disadvantages for property developers. It’s important to seek independent financial advice before you purchase land for this purpose.
We’ll now look at the pros and cons of a land banking scheme in turn.
Not necessarily, as you can start off on a small scale. In fact, you probably should so that you can get to understand what’s involved in terms of getting council approvals. This should give you the experience and confidence to explore larger-scale projects.
Managed investment schemes must be licensed by Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC). Your land finance scheme will need to be licensed if:
A comparison rate is the cost of interest plus any loan fees and charges. Lenders in Australia must advertise their comparison rates on their loan products to comply with the provisions of the National Credit Code. That’s why you usually see two interest rates advertised on a loan product.
The comparison rate will be a higher rate than the nominal rate, which only includes the cost of interest. Always use the comparison rate when comparing different loan products so that you know the full cost.
The LVR is the value of your loan expressed as a percentage of the property you want to buy. For example, if you want to borrow $1.6 million to buy land that’s worth $2 million, your LVR is 80% (i.e. $1.6 million divided by $2 million).
If you have a deposit less than 20%, you’ll usually be required to pay for lenders’ mortgage insurance (LMI). This can be a significant cost and should be considered in the cost/benefit analysis for your land banking Melbourne project. LMI protects the lender if you don’t make your loan repayments. You can lower your LVR by providing your lender with a higher deposit.
Land banking refers to the practice of acquiring and holding undeveloped land for future investment or development purposes. Investors or developers purchase land with the expectation that its value will appreciate over time. This strategy can involve re-zoning, infrastructure planning and waiting for optimal market conditions before selling or developing the land for profit.
Land banking involves acquiring and holding undeveloped land for future use or investment. Investors purchase land in anticipation of its value appreciation due to urbanisation, population growth or development projects. The land is held without immediate development, allowing it to appreciate in value. When demand increases, investors sell or develop the land for profit. This strategy requires careful research and a long-term perspective to capitalise on potential gains.
Before making a land banking investment, be sure to assess the location’s growth potential, zoning regulations and market trends. Analyse the land’s proximity to essential infrastructure, development plans and demand projections. You should also verify the credibility of land banking companies and conduct due diligence on legal titles, environmental factors and potential risks. This will help ensure that you make an informed decision.
Choosing the right lender and the right loan is crucial to help ensure the maximum return on your property investment.
At ARG Finance, our experienced team of finance brokers can help you to source the right finance for buying a property. We’ll take the time to understand your needs before recommending appropriate financing solutions. We work with clients in a diverse range of property markets.
Contact us today to find out how we can help you to finance your land banking investment.