Land has increased in value by over 800% over the last twenty years..
...and remains one of the most popular forms of investment. Unlike stocks and shares, the land buyer will always have a tangible investment they can touch and use. Furthermore, due to its limited supply and demand, one can also rest assured that land values will almost always be on the rise, having already increased eight fold in value over the last twenty years.
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Investment in Land - An Opinion
Investing in greenfield land has never looked more promising David Pretty, Barratt's CEO has admitted that he is actively looking for "scruffy" Green Belt land to build homes on (Evening Standard 29 Nov). John Prescott has given his backing for 3,600 homes on Greenbelt land in Herts thus making the land owners over £700 million (The Comet, 3 Nov).
It was only a few years ago that you could safely say that the price of the land accounted for a third of the final house price. Yet today you have to assume that it will account for at least a half of the final house price.
The Government has said that they will force planners to allow the building of a third more new homes in parts of the country where the house prices are the highest (Telegraph, 6 December) and Buckinghamshire has some of the highest house prices in the country. It does seem to be an immense waste of £250,000 which surely would be better spent on additional nurses or teachers. Britons population is now over 60m and we have an acute housing crisis. In the South East we need to accept that houses will be built in our locality and that this may drag our house price down a little - but at least it means that our children will be able to live in realistically priced houses rather than living with their parents until well into their 30s!
Learn how to use leverage
Did you know that many real estate investors started off with very little money to invest? Even large real estate developers like Donald Trump have learnt the power of leverage when investing in property deals. You want to leverage as much as you can so that you can control property worth many times more than what you own. Remember however to keep a rainy day fund containing a portion of the rental payments so that you can hedge yourself against a possible period where unit occupancy of your real estate investment is low. Leverage when used well can make you lots of money but if managed badly, will bankrupt you. Thus planning your cash flow and learning how to use debt is critical before you start serious real estate investment.
Across the UK there is increasing demand for housing. In order to meet this demand there needs to be more land designated for residential development. With this increasing demand, there has probably never been a better time for investing in land.
Housing Shortage
The increase in single person households has been one of the most important factors leading to housing shortages in recent decades. By 2026, there will be 9.9 million single person households - this is projected to be 18% of the population (Source: Single Person Households and Social Policy, Joseph Rowntree Foundation, 2006). Longer life expectancy, more young people choosing to live on their own, and a rise in divorces all contribute to this.
Planning policies need to take into account this changing profile in household types as well as overall household growth. Government targets for new homes are not sufficient to meet the demand, are not located where need arises, and they under provide by perhaps 50% the number of affordable homes required (Source: Land for housing: current practice and future options, Joseph Rowntree Foundation, March 2002). More land is needed to meet this shortage, and by investing in land you could benefit from potential development gains.
Housing Supply
The UK housing market has seen strong growth since 1999, the recorded number of sales of building land has been in steady decline since 1997.
If house-building in England continues at the levels recorded in 2001, there will be a shortfall of over 400,000 homes failing to cater for the additional 3 million households projected by the government between now and 2021.
(Source: Residential Land Prices Significantly Outstrip House Price Growth, Halifax Group Plc, 22 February 2006)
Housing Affordablity
House prices are still increasing steadily, despite mixed levels of optimism for the future. Affordability is expected to remain a key issue given that house prices are again outstripping growth in earnings (Source: Housing Statistics Briefing, English Partnerships, May 2006).
According to the Halifax, annual house price growth as of the fourth quarter in 2006 was 9.9% (Source: www.hbosplc.com). These continual house price rises are a reason for the increase we have seen in the demand for investment land.
Land Values
Between 1986 and 2006 residential land values rose at almost double the rate of residential house price rises with residential house prices having risen by 410% whereas land values rose by 764% (Source: Housing Statistics Briefing, English Partnerships, September 2006). Investing in land has a lower investment price point than most property.
Please note that the value of land can fall as well as rise.
Lloyds & Co Land Investments (“Lloyds & Co Land Investments Ltd”) is not authorised or regulated by the Financial Services Authority or any other regulatory body. Lloyds & Co does not give investment advice or offer regulated investment products to the public. Lloyds & Co offers parcels of land for sale. Having sold the land, Lloyds & Co do not pursue re-zoning or planning permission and as such does not carry on any regulated activities under the Financial Services and Markets Act 2000. Neither Lloyds & Co nor any person connected with it will have any role in pursuing re-zoning or planning permission, either in respect of individual parcels of land or a site as a whole, as a way of increasing the value of the land. Lloyds & Co gives no guarantees that land will in the future be re-zoned for development purposes or that planning permission will be granted. The value of land and any income from it may go down as well as up and you may not get back the original amount invested. Past performance is not a guide to the future.