Vol.32 - Land Banking – Could this be the Holy Grail of Investing?

Land Banking – Could this be the Holy Grail of Investing?
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By Stephen Huggins, TSI International Group KK| October 27, 2005 | Comment on this article


Land Banking and the Holy Grail
In this issue, I’ll briefly explain the concept of Land Banking and why this just may be the most solid, secure and profitable investment you can make. The Holy Grail of investing? That’s a BIG claim to live up to. Prior to joining another successful Land Banking firm in 1995, I was with an investment bank in Hong Kong. During that time we considered the “holy grail” to be any investment that would produce incredible returns with little or no risk. Unfortunately, during the investment banking years, the “holy grail” never really did appear. However, it did appear in 1995, which coincidentally, happens to be the same time I started my career in Land Banking.

"It's tangible, it's solid, it's beautiful. It's artistic, from my standpoint, and I just love real estate." Donald Trump

Well known Land Bankers
In the U.S., some of the best known Land Bankers are people like Donald Trump and the Rockefellers. Hong Kong has “Superman” Li-Ka Shing, a successful land banking real estate tycoon. In Japan, where I pioneered Land Banking for high net worth investors since ‘97, we see Minoru Mori, Tokyo's most powerful property tycoon and leading member of the most prominent real estate development family. Yoshiaki Tsutsumi, (Seibu, Kokudo) was once the richest man in the world and at one time owned one sixth of all the land in Japan.

What is Land Banking?

• The strategic acquisition of land in advance of expanding development;
• The process of purchasing land and holding it for future use;
• The practice of buying and holding pre-developed land in the path of growth;
• The purchase of land at today's prices for planned development and future capital gains.

Land Banking Process




1. Land Acquisition
2. Land Syndication
3. Land Value Creation
4. Exit - Land Sale

Land banking is a Proven Concept
Pre-planning purchase of agricultural, green belt and pre-development investment grade land is nothing new - large developers and the super-rich have been doing it for decades. They "stockpile" land into their own land banks for future development use. Every developer knows that each town and city must grow outward absorbing undeveloped land. Clearly, it is preferable and far more profitable to buy land prior to planning applications being submitted. Having gained planning permission the land may then increase in value 200% to 500%. There are no complicated concepts that investors need to understand with land, just that there is an ever increasing demand for expansion with a limited supply of land for purchase.

How Land Values Increase
As urban areas grow in terms of population, income and wealth, the value of land in surrounding areas increases. The two key factors that drive land values upwards are:

1. Population Growth
2. Economic Growth

The Key to Creating Value
While population growth and economic growth help drive average land values upwards, the real value in Land Banking comes by following a comprehensive development process. This process results in optimising the raw land's development potential. This involves taking the raw land through a series of re-zoning and planning stages. Ultimately, it results in land use re-designation which creates more demand for the land, thereby increasing its value. Almost overnight.

For example, if we take a section of land through each of the zoning phases:

Type of Zoning	Market Price
a. Agricultural/pre-development	-100,000 per acre
b. Industrial Land	-250,000-600,000 per acre
c. Residential Land	-400,000-600,000 per acre

“Land is the Basis of All Wealth.” Adam Smith

How do we Reduce Risk in Land Banking?
At TSI International we make every effort to completely understand risk. Our goal is to address every aspect of risk and reduce as much risk as possible:

• rigorous quantitative and qualitative investment process
• strict due diligence practices
• clear investment objectives, guidelines and policies
• invest in a G7 country with little political, financial or terror risk
• geographic investment area with no typhoons, tsunami’s or earthquakes
• use no leverage
• work closely with local, regional and national government

Benefits of Land Banking

• 15-20% Targeted Annual Returns
• Profit in Rising and Falling Markets
• Portfolio Diversification
• Fixed Asset (with TSI the asset is from a Aaa rated government)
• Hedge Against Inflation
• Security - Capital Preservation
• Absolute Return Strategy
• Low Minimum Investment

"Real estate ownership is listed as the prime source of wealth more often than any other occupation." Forbes

The Holy Grail?
As explained in the beginning of this article, the “Holy Grail” would be an investment that demonstrates incredible risk vs. reward characteristics. Could this be Land Banking? Frankly, I’m not sure. I’ll leave that up to investors to decide but as the chart below demonstrates, Land Banking investments clearly offer some outstanding risk vs. reward characteristics which make it a good choice for any investor.























What to look for in Land Banking Investments
In recent years, we’ve seen countless people try to get into the land banking business. We recommend you stay away from the added risk associated with emerging market economies and where there can be land ownership issues. In some countries it’s illegal for non-citizens to directly own real estate. Share schemes and offshore corporations to avoid ownership restrictions may expose you to civil and legal liability. A good land bank will provide the investor with direct ownership of the land. As with any investment - do your due diligence. Most large reputable firms are well versed in working with private banks or securities firms and they will have plenty of information and documentation for you to review.

Stephen Huggins
TSI International Group KK
President
Tokyo, Japan
info@tsi-international.com
www.tsi-international.com

Copyright 2003-2005 TSI International Group Inc. All rights reserved.

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