UK Land as a Capital Growth Investment

The greatest wealth over the centuries has been built with land. In a modern age, there are many different ways in which land can yield strong capital growth.

 

Among the many assets that create capital growth – investment trusts, convertible securities, traded options, fixed interest securities, etc. – it seems that equities get all the attention. And yet UK land, a tangible alternative investment, consistently and robustly achieves capital appreciation. Under certain configurations, in particular raw land that is converted to housing, land can grow significantly in a relatively short period of time (less than five years).

 

The primary reasons for this are the housing shortage in the midst of population growth and a continually expanding economy. The proper context for all this is the 2008 financial recession and recovery, of course. But continued capital value growth has many fathers. The outcome of the May election has removed worries over Labour’s proposed mansion tax, boosting sales of £1 million-plus residences. Government schemes to loosen up lending to first-time buyers, in particular, have also brought more buyers into realistically being able to afford to buy homes. Even the price of land dedicated to agricultural use has risen for the past several years.

 

In other words, land is finite while demand for it in all uses continues to increase.

 

Which is where land-based capital growth funds come into play. Investor groups, assembled by land specialists, focus their money and expertise on raw land for site assembly and to ultimately set up the property for home building. Because it involves the crucial step of achieving council planning approvals for land use changes, this is a way to rapidly and significantly increase capital growth in a land investment.

 

It bears noting that those investor groups, often called strategic land partnerships, do not typically build the homes even though these investments are driven by the high demand for housing. Their tasks are to identify where housing is in high demand, to buy land in those areas from existing owners, to present and negotiate with local planning authorities (LPAs) on use designation changes, and very often to design the site and build the infrastructure (roads and utilities) that pave the way, literally, for homebuilders to buy and then go to work on construction. Structured correctly, the original investors and later the homebuilding companies complete their development work with a profit.

 

Other investors might prefer these means to achieve asset value increases in their land:

 

• Buy stock in homebuilders – Following the May 2015 elections, homebuilder stocks jumped as high as 14.4% (Berkeley Group Holdings Plc) in one day after the Conservatives’ victory. But of perhaps more long-term significance is how new housing starts rose by 31% as of late May. These companies know that buyers can get mortgages.

 

• Buy farmland – The price of agricultural land across the UK has risen 250% since 2005. However, weak crop prices and other factors suggest more land will be available for sale – which will contribute to stagnant price rises, if any.

 

• Buy-to-let in hot neighbourhoods – A column in ThisIsMoney.co.uk in 2014 outlined tips for would-be landlords on how to buy buildings or land in up-and-coming districts, which might be distinguished by the presence of niche food chains (independent coffee shops, restaurants and delicatessens), along tube lines a stop or two down from expensive postcodes, where 20- and 30-somethings live and where new grocery stores, schools and motorway or train access is within five miles. Given that a larger share of the population now rents, property made for them is in increasing demand.

 

Note that no recommended schemes for investors include land banks. The Financial Conduct Authority has determined most land banking schemes to be scams, which have bilked UK investors of £200 million in recent years. These differ from true capital growth land opportunities in that for the latter, the land is certifiably amenable to home building. Land banking scams typically involve land that is far less likely to be developed on any kind of scale.

 

Investment decisions in land or any other real asset, bonds or equities require a comprehensive analysis of market conditions as well as the wealth building strategies of the investor. It makes sense to engage an independent financial advisor to ascertain what to buy, when and for how long.