Land investment moving into top gear
The Rural Market Land Survey, quarter 4 2004, undertaken by the Royal Institute of Chartered Surveyors concluded that a new breed of private investors who had muscled into the land buying market had drive agricultural land prices up by 30% over the previous nine months.
Though land prices may have stabilised slightly, the last issue of the Rural Market Land Survey showed that land prices in 2004 had risen by 25%. And this is for agricultural, bare land - not prime residential land - which usually comes under the 'cheap as chips' category as far as land goes.
Here, we take an overview of land as an investment, what's driving it, how you can mitigate the risks and where to find land.
What is driving land investment?
The interest in land investment has been predominantly been driven by the state of the housing market.
In essence, rising house prices have pushed first time buyers out of the market, prompting the Government to increase housing targets and change the planning process in an attempt to achieve those targets.
Figures like over a million homes needed in the Southeast in the next 17 years, fuels the demand for land as it is obvious that these houses will have to be built somewhere.
There are various arguments about what type, e.g. brownfield, greenfield, of land could be used for all this new housing and to what extent, however, there is no doubt that more land will be required - giving land potential investment kudos.
What are the risks for investors and how can they be mitigated?
Land as an investment can be viewed as a combination of stocks and shares and the property market.
Like the property market, land is a tangible investment and will always have an intrinsic value. As a survey by the Halifax showed in February 2004, the value of residential land had out-performed bricks and mortar property by more than two-fold. House prices in the previous twenty years had risen four-fold, land had witnessed a nine-fold increase.
However, the statement "speculate to accumulate" is very true of land. The way to make significant returns is to spot greenfield or greenbelt agriculture land with development potential e.g. where housing could be built. This carries a higher degree of risk and in the current climate, owners of such land realise its potential.
Of course, recent articles announcing that over 2,400 acres of greenbelt are being developed on each year raises the game and interest of those prepared to speculate with greenbelt sites.
But you have to be realistic, gone are the days when you could pick up land close to existing residential development for "agricultural value". Now such land costs around £30,000 per acre.
The one way to lessen a risk is to buy less expensive land, such as agricultural land. The Rural Market Survey published by the Royal Chartered Institute of Surveyors earlier this year concluded, "farmland prices in 2004 rose by 25%, compared to just 7% in 2003, the largest increase since 1994".
This is a reasonable return but a word of caution. Trying to find agricultural land at quoted agricultural prices, around £3000-£5000, is hard and getting harder. The cheapest agricultural land we sell starts at around £5,000 per acre and land that is well located and has other potential recreational uses, such as for horses, costs between £7,500 and £15,000 per acre.
Changes in planning law
The changes to planning regulations that the Government introduced in 2004 should in theory streamline the process. Local planning authorities are supposed to work with developers and housing authorities to identify land for future development.
Furthermore, Local Development Frameworks are meant to be working documents that could enable land to be brought forward quicker for development.
However, it remains to be seen how effective the new legislation will actually be. Local councils, by their very nature, will be politically motivated and nimbysm is always likely to have a strong impact on land development.
Finding investment land
There are now literally hordes of companies selling investment plots of land to private investors. These are usually sold as a speculative investment and as such could pay substantial dividends if the land gets planning permission.
As with bricks and mortar property, the key requirement here should be location. The land must be adjacent to existing residential development with good access links. You don't necessarily have to be put off if the land is greenbelt - that does get developed - but do use a solicitor to safeguard your own interests and do not believe any sales person who claims that any land will get planning permission in three to five years. If such a claim where true then the land would already be in the local plan or Local Development Framework.
June 2005
