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.

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".

June 2005

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