Any investment diversification strategy should involve undeveloped land.
Don’t trust the national numbers on housing values as the final word on all real estate investment. Regional differences are significant and opportunities abound.
The conundrum for investors who are intrigued with UK land and real estate is, with a growing population and so little building in the past decade, why aren’t more houses being built?
After all, Census 2011 showed a growth rate of about 7 per cent since 2001, a much healthier addition of population than most countries found in the Eurozone. England and Wales in particular are a strong draw for immigration, and the birth rate has remained relatively strong even through the financial recession of the past six years. Exacerbating this further, pensioners are living longer and in greater health, keeping granny from moving out of her granny flat.
Savills research offers some data and analysis that suggests some fundamental ways in which housing will be built in the years to come. It offers a different perspective to anyone involved in land development, as investment on UK strategic land and raw acreage is most adaptable to market needs before buildings are constructed.
Specifically, the firm offers the following data points:
Regional differences mask home prices – Overall, homes in Britain have seen an average value increase of 6.4 per cent since 2007. Which is all well and good, except it masks the differences between North and South: in the South East and London, increases in home values are in the ballpark of 10 to 20 per cent. In the North of the country, values have fallen. This is not to say a land investment in those areas will not make sense, as real estate is sometimes tied to hyper-local factors. But the larger point is that in London and the South East, better opportunities are likely to be found.
Generation rental – Of greater significance is the shifting of ownership to rental for many middle class families. Savills reports “the value of Britain’s private rented stock has risen by 42 per cent over the past five years and an extraordinary 250 per cent in the past ten years.” The 4.8 million private homes that are rented today represent 17 per cent of all dwellings, when just ten years ago to-let housing was a mere 10 percent of the national inventory. What has caused this? Increasingly, working families are unable to afford the necessary deposits required for purchase, and tighter lending standards by banks also make it more difficult to get mortgages.
Best opportunities for those with cash to invest – All those rental homes still need to be built, begging the question: Who will finance them? According to the director of Savills research, “There is now a real opportunity for investors with cash, particularly those ready to invest for income, because capital value growth will be muted over the mid term.”
Real estate developers are on the front lines, constructing the right buildings for the market. But before they can do that, land investment companies identify parcels nearest to where building of one type or another should take place. This often is where employment is growing, or for any other reason the population is sufficient to fill new housing. Strategic land development will usually involve property zoned for agriculture or commercial or industrial purposes which local planning commissions will identify as more appropriate for residences, factoring for local economic conditions and growth opportunities.
Individuals who want to participate in land development and investing in real asset classes should first work with a qualified, independent financial advisor to be certain they are working with legitimate players and that the investment fits their overall financial goals.