I participated in a land development scheme a few years ago. The way it worked was as follows:
- Developer advertised a scheme where a large chunk of land was being divided into smaller lots and sold off for the purpose of constructing houses and commercial buildings.
- Applications to subscribe to the scheme were sent in by the general public. The developer had published the land values for different lot sizes.
- Upon acceptance, the developer issued certificates to people confirming their share in the scheme and the square footage of land they owned. However, the land was not physically demarcated and allocated to people yet.
- I bought a piece of land from someone who was an initial subscriber to the scheme. I paid the seller the base price (i.e. value of the land prescribed by the developer) plus a markup. I received a letter from the developer confirming they have registered the sale and stating the amount of land I owned.
- As mentioned above, when I bought the land it was not clearly demarcated. I knew my share of land would be somewhere in the overall project but it was not “allotted” to me yet. The land was allocated later based on balloting. Land prices within the scheme vary based on various factors (for example, proximity to amenities) and it was your luck if you were allotted a nicer lot.
- In between the time the scheme was launched and the allotment of lots to subscribers (the allotment happened in phases and took from a few months to a couple of years), there was a lot of buying/selling going on and the markup for different lot sizes varied and would fluctuate on a daily basis.
My question is, was my purchase a valid transaction? What, if any, are my obligations now? If I sell this land now, can I keep the capital gain?