Land bank
A land bank is a property developer's or investor's portfolio of raw plots and undeveloped land held for future construction. The term is descriptive rather than legal: a land bank is simply the sum of the plots the party has acquired with a view to zoning, developing or reselling them later. The land bank is one of the most important strategic resources for housing developers and industrial property players, and the size of the bank says something about how many years of production the company can sustain without new acquisitions.
Raw plots in the bank can be at several stages. Some are still unzoned (classified in the municipal master plan as LNF, that is agriculture, nature and outdoor recreation, or as future development purpose), others have a settled land-use purpose but lack a detailed zoning plan, and yet others are fully zoned with an adopted zoning plan, ready for a building application. Maturity determines both risk and value: an unzoned plot is priced at a steep discount because zoning can take 3-7 years and the outcome is uncertain. A fully zoned plot with a project ready for a building application is priced close to the completed development value minus construction cost. The difference between the two levels makes up the developer's profit margin.
The bank is built up through direct purchases, options (the right to buy at a later date in return for a premium), ground lease agreements or holdings in companies that own land. Options are particularly useful because they give the developer time to settle the zoning without tying up capital in full, but they cost a premium and give no control over the property itself. Buying through transfer of the bruksnummer gives full control, but locks up capital and triggers document duty of 2.5% on registration.
In accounting terms, the land bank is treated as inventory (NRS 1 or IFRS) or as a fixed asset, depending on whether the business is development-oriented or rental-oriented. Plots for sale after development are typically recorded as current assets at cost, with a write-down to fair value in the event of a lasting fall in value. Plots held for long-term letting or own operations are recorded as fixed assets, often at fair value under IAS 40. The difference matters in practice when the market turns: a fall in the market value of a development plot feeds straight through as a loss in the income statement for developers.
The risk in a land bank is concentrated. A municipality can change the municipal master plan, add consideration zones or trigger sequencing requirements that delay development or make it more expensive by several years. Objections from central government sectors can stop a zoning proposal. The Marka boundary, cultural heritage status, quick clay and flood zones can in the worst case make a plot undevelopable. Skilled land bank strategists therefore spread the bank geographically, stagger maturity in phases and keep a buffer of fully zoned plots to secure continuous production.
In Placepoint you can follow the land in the land bank through Monitoring in a project, so that changes in zoning, the municipal master plan or neighbouring conditions appear as alerts. The example Plot search with matching shows how you systematically identify candidates for the next acquisition.
How this looks in Placepoint
In Placepoint you find this in Monitoring:
From Placepoint's glossary: Land bank
More information: Skatteetaten: Document duty, Kartverket: Buying and selling property, Eiendom Norge: Market reports
English: Land bank (developer's portfolio of plots held for future projects).
Frequently asked questions
What is a land bank?
A portfolio of raw plots and undeveloped land that a developer or investor holds for future construction. The size of the bank says something about how many years of production the company can sustain without new acquisitions.
How is a land bank built up?
Through direct purchases, options, ground lease agreements or holdings in companies that own land. Options give you time to settle the zoning without tying up full capital, while a purchase gives full control but triggers document duty.
How are plots in the land bank recorded in the accounts?
It depends on the purpose: development-oriented plots are recorded as inventory (current assets), rental-oriented ones as fixed assets. Plots for sale after development can, under IFRS, be measured at fair value through IAS 40 if the criteria are met.
What is the biggest risk in a land bank?
Zoning changes, objections, consideration zones and sequencing requirements that delay development or make it more expensive. Geographic concentration and phase concentration (everything at the same stage of maturity) also create vulnerability.