Does Capital Growth in Strategic Land Require Building Structures?

Learn how building structures can affect capital growth in land.

Strategic land investments are affected by many factors, primarily in adapting to the strongest market needs in the present. Existing buildings can diminish value.

The Daily Telegraph reported in October 2012 that a jump of 1.3 percent in house prices at the end of the summer was more an anomaly than hopeful trend. The article quoted Robert Gardner, chief economist at Nationwide (which issues monthly house price surveys) as saying “we should never read too much into one month’s data…the housing market is firmly in the doldrums, although the national average does mask significant regional differences. That said, in parts of London where there is a shortage of decent family homes for sale, there is still significant competition from buyers and prices are holding quite well.”

Gardner’s comments did not address specific properties outside London, but investors looking for capital growth in land understand there are opportunities elsewhere. The seven percent increase in population across the U.K., as identified in the 2011 Census, is a strong indication that new homes need to be built, particularly in towns where the local employment base is expanding.

But the matter of existing homes and buildings raises important points of discussion for the land investor. Typically, land investment involves raw properties, perhaps zoned for agricultural purposes but where the local authorities are predisposed to a zoning change. The astute investor – increasingly, land investors join together in joint partnerships that include an advisor with extensive experience in land capital growth – typically looks for undeveloped land.

The reason for this is simple: existing structures and the community infrastructure built for previous purposes may not serve current-market needs. There is less growth potential for the investor if, for example, 30-year-old multi-unit structures occupy the property because those buildings might require expensive renovation or demolition. With undeveloped land, the buildings, street configurations and utilities can be designed to meet modern needs.

This does not mean that historical buildings necessarily have to be demolished. Some developers are able to save barns and other aged structures to provide a development with character. For example, the Reigate & Banstead Borough Local Plan Policy on redundant rural buildings (in conjunction with the Department of the Environment Planning Policy Guidance Notes’ PPG7, “The Countryside and the Rural Economy” and PPG2 “Green Belts”) advises that barns of specified vintage and characteristics be preserved, preferably for industrial or commercial use. In such a case, it is entirely possible that a structure could be woven in as an integral economic component of the new community built around it.

As the economist Gardner stated, there are specific regions where demand defies the broader market downturn. In such cases, the capital growth-minded land investor is wise to work with experienced strategic land investment advisors who understand where opportunities exist and where they do not. The investor should also consult with an independent financial advisor to discuss where land investments might fit into an overall personal financial plan.