How to Achieve Capital Growth in UK Investment Land

There are a variety of ways to earn a profit investing in UK land. It’s not all in London and it doesn't necessarily require being a landlord.

A mid-year 2014 report from the Office for National Statistics (ONS) confirmed some real estate investors’ best dreams and worst nightmares. 

The good news is that rental rates from regions outside of London and the South East – Wales, the Midlands, North East and North West in particular – are up, yielding a 6.4 per cent rise (average) since 2013. The bad news that keeps landlords awake at night is that increased prices for both undeveloped land and built properties in London and the South East, following a 20 per cent price run-up, result in lower net rental income. 

In other words, it’s more profitable to be a landlord outside of London. Which illustrates the tricky nature of achieving capital and income growth in UK real estate. But make no mistake, whether one simply trades in REITs or participates in capital growth land opportunities, there is money to be made in real estate and investing in UK land. The Census 2011 confirmed that the UK population grew at a healthy rate (a 7 per cent increase in the preceding decade) but that house building has lagged behind that by a significant amount. Approximately 200,000 new homes need to be added to the nation’s inventory per annum, but actual home construction has been less than half of that for many years. 

So with such huge demand for housing, where might an investor put his or her money? As the ONS findings illustrate, geography can make a very big difference. But the type of investment itself is likely to affect both the capital growth as well as the type of investor (i.e., the goals of the investor can vary greatly between individuals). Here are some broadly different real estate investment programmes:

• Buy, rent and wait – Whether it is farmland or an urban flat, growth will likely occur over time as you collect rent as income (or to reduce your costs of ownership). That has been the better part of the buy-in-London strategy for many, given those healthy double-digit valuation increases in recent years. But can those increases continue?

• Site assembly for resale – The strategic land investor will purchase property that is ripe for a use change – pending local planning authority approvals – then provide the infrastructural amenities (roads and utilities) necessary for homebuilding. More and more, site assembly investors then sell those properties to homebuilders, yielding a faster return on investment and allowing construction companies to determine what to build and how to make money on it. This approach allows each to assume risks they understand and are comfortable with.

• Invest in homebuilders – Per the preceding point, homebuilder stockowners or lenders can and do profit from the construction phase. 

• Real estate investment trusts (REITs) – The most liquid method for achieving capital growth gains in land is to buy shares in a REIT. Available only since 2007 in the UK, REITs are subject to general market dynamics and may be valued in ways that are unrelated to the rental or resale values of properties. 

No investor should go about taking a position in real estate and land without input from third parties. Land fund managers are skilled at outlining the risks and potential rewards of specific properties, while independent financial advisors help individuals and families identify where real estate might play a worthwhile goal in their comprehensive estate planning.