Any investment diversification strategy must include undeveloped land.
Don’t rely on national home value numbers as the final word on all real estate investing. 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 construction in the last decade, why aren’t more houses being built?
After all, the 2011 census showed a growth rate of about 7 percent since 2001, a much healthier population addition than is found in most euro zone countries. England and Wales in particular are a strong draw for immigration, and the birth rate has remained relatively high even during the financial recession of the last six years. What makes it even worse is that retirees are living longer and in better health, which prevents grandmas from moving out of their granny apartment.
Savills’ research offers some data and analysis that suggests some fundamental ways in which homes will be built in the coming years. She offers a different perspective for anyone involved in land development, as investing in strategic UK land and raw acreage is best suited to market needs before buildings are built.
Specifically, the firm offers the following data points:
Regional differences mask house prices: overall, homes in Britain have seen an average value increase of 6.4 per cent since 2007. Which is great, except it masks differences between the north and the South: In the South East and London, increases in home values are in the ballpark of 10 to 20 percent. In the north of the country, values have fallen. This is not to say that a land investment in such areas is pointless, as real estate is sometimes linked to hyperlocal factors. But the bigger point is that in London and the South East, better opportunities are likely to be found.
Rental Generation – Of greater importance is the shift from ownership to rental for many middle-class families. Savills reports that “the value of Britain’s private rental shares has risen by 42 percent in the last five years and an extraordinary 250 percent in the last ten years.” The 4.8 million private homes that are rented today represent 17 percent of total housing, when just ten years ago rental housing represented barely 10 percent of the national inventory. What has caused this? Increasingly, working families are unable to pay the necessary deposits for the purchase, and stricter lending standards by banks also make it more difficult to obtain mortgages.
Best Opportunities for Those With Cash to Invest: All those rental houses still need to be built, which begs the question: Who will finance them? According to Savills’ research director, “there is now a real opportunity for investors with cash, especially those who are willing to invest for income, because capital value growth will be muted over the medium term.”
Property developers are on the front lines, building the right buildings for the market. But before they can do that, land investment firms identify the parcels closest to where construction of one kind or another needs to take place. This is often where employment is growing, or for any other reason the population is sufficient to occupy new housing. Strategic land development will typically involve properties zoned for agricultural or commercial or industrial purposes that local planning commissions will identify as most suitable for residences, taking into account local economic conditions and growth opportunities.
Individuals wishing to participate in land development and invest in real asset classes should first work with a qualified independent financial adviser to ensure that they are working with legitimate players and that the investment is in line with their overall financial objectives.