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Land investment – the new pension fund or just for the fun of it?
How many of us have become part-time speculators of property and land over the past ten years? Or Buy-to-letters? Or even interested enough to try our hand at it?
Investing in land was historically the preserve of high net worth individuals, financial institutions and land professionals – but it is fast becoming popular as an alternative to investing in severely raided pension funds. Indeed, investing in UK land rarely provides yield, but can offer very substantial capital growth in the medium term. Type ‘Land Investment’ in to Google and you’ll be offered 72,500,000 links.
Land in the UK still presents considerable opportunities to generate returns in residential, commercial and industrial developments. Do you wish to join the growing band of Land Traders? Are you able to see an opportunity, buy the land, obtain planning permission to then sell it on at a profit? Would you like to see more than healthy returns of 400-500% within 4-5 years? To be successful you’ll need to be especially good at using a network of people to promote the land, possess good financial acumen, and have a very strong constitution for dealing with complex promotional, planning and people issues.How do you source good quality investment land? To do this, you’ll need an appreciation of the changing nature of UK land planning and development.
The planning framework is undergoing change, there is an existing housing shortfall, and equally political pressure to build many new homes during the next decade and beyond, provides a compelling proposition for investors. Value creation lies in the planning and development process. The opportunity to participate in strategic land investment has never been greater and is now available to you, the private investor.
Property investors may have prospered in recent times, but it is land ‘change of use’ which is structurally superior for an investor (because a greater proportion of the total project value lies in the land).
The economics are simple: What determines demand and can land really be regarded as being fixed in supply?
With agricultural land, the maximum that a purchaser will be prepared to pay for a given piece of land will be the value of the most suitable crop less the costs of production, including some profit. For housing, the developer estimates the expected price that can be obtained for the dwellings to be built less the costs of building and allowing for some profit. The residual determines the maximum that the developer will be prepared to pay for the land.
1. What quantities and types of demand for housing is there in the region?
2. Have you carried out a full sustainability study prior to acquisition?
3. Is there road access, or existing transport infrastructure?
4. Are there sufficient amenities (Schools, local services, etc) to support residents of a new development?
5. If you’re investing with a company, does it have a successful UK land track record?
6. Do you/the company contractually retain a holding in the land investment site?
7. How are funds to be committed contractually to the planning application for the land investment site? How much?
8. What, if any, overage payments are due on the land investment site?
9. Will you own the title deed to your investment land? And have full access to it?
10. How thoroughly have you/your agent/your solicitor explored the contract prior to committing to investing in land?
11. What timescales have been quoted for land investment, and are they reasonable?
12. Do you/the company have an in-house planning team to work on the land investment site?
Dodgy land investment schemes include gimmicks and pyramid schemes, which often leave innocent and trusting people with large holes in their pockets.
Beware of companies who buy agricultural land in the green belt, and then split it into house-sized plots sold at a massive mark-up. Typically, agricultural land changes hands for only a few thousand pounds an acre.
Dividing the land into house-sized plots is simply a sales gimmick and there is no guarantee that planning permission to build will be granted. Without this, there will be no windfall gains for investors.
A recently exposed pyramid scheme was based on people investing £2,052 for two years and being told they’d get back £32,300. What they were not told was that their 'profits' had to come from money invested by new recruits, and when the supply of new recruits dried up, the whole network would collapse.
Words of warning:
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never invest more than you can afford
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the value of land can go up as well as down
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enjoy the risks, and reap the rewards!
