Why are UK Property Funds a Good Investment?

Investors seek profits on the exceptional housing demand. Fortunately, public and private programmes synergistically encourage home building.

“Everyone needs a home over their head at the end of the day.”

This is what a UK residential property fund manager said in January 2015 to Professional Pensions, a website dedicated to institutional investors who are tasked with achieving the highest returns for their clients. It was his way of saying that the UK property funds market is worthy of his company’s investments.

The fund manager (from M&G UK Residential Property funds) described being involved in the property market with built-to-let properties as well as participating as an investor in the development of new-build homes. The 25-34 age group is a focus of this funder, which means they target properties that are near public transport.

That particular age cohort is indeed important, not because of where they stand in wages but more because they represent pent-up demand. With tight lending in the UK - particularly after the 2008 financial crisis - homebuilders were reluctant to construct new homes at the entry level for first time buyers. In the past decade, this has slowed housing formation altogether or put people into the rental class who would likely be owners under other circumstances (working people who rent now comprise about 19 per cent of the market, up from 11 per cent a decade ago).

Homebuilders and developers are fully aware of this demand, but were waiting on the sidelines because of the difficult financing matter. Today, there are several factors addressing this blockage to building - which have spawned creativity in the private sector as well as from the government:

Help to Buy programme - First time buyers and home movers are provided equity loans on properties with purchase prices up to £600,000. Buyers need to contribute at least 5 per cent of the property price for a deposit while the Government provides a loan up to 20 per cent of the price. The buyer then needs to qualify for a 75 per cent mortgage loan. No loan fees are charged for the 20 per cent Government loan for the first five years of home ownership.

Starter Homes programme - Available at a 20 per cent discount to under-40 buyers, this housing bill is targeted at increasing the UK housing stock by 200,000 residences. All homes will be built on brownfield (previous use) land. It is favourable to self-builders and smaller home construction companies with reduced bureaucracy and a streamlined neighbourhood planning process.

Property fund management of strategic land - From an investor’s perspective, this is a way to help increase the country’s housing stock while achieving asset growth. The problem for homebuilders is they prefer not to go through the planning process and tie up capital in buying UK land for development; their skills are in designing homes, building and then selling them. With increasing frequency, they are able to buy lots on streets that have utilities installed and planning approvals already cleared, thanks to the work of developer-investors. The investors, typically working in joint venture partnerships, identify where homes are needed most and find land that can increase in value if allowed a use designation change by the local council. Once that is accomplished, they sell lots to builders.

Crowdfunding - Start-up investment companies are launching a global stock exchange for residential properties in the UK and possibly abroad. Launched in early 2015, Property Partner has properties in London and the South East where more than 1,000 investors have invested as little as £50 on up to £50,000 in homes, hoping to receive rental income and possibly capital growth. The shares are highly liquid and can be traded via a one-off transaction fee of 2 per cent. An additional 12.5 per cent fee is charged for advertising, letting and managing the property.

It took an improving economy to convince investors that the homebuyers and home renters were ready to jump out of their parents’ flats and into their own homes. Government programmes have had a measurable impact, but entrepreneurial thinking on the part of strategic land partnerships and others has made the private sector a good partner. With a shortage of one million homes, it will take a decade or longer to bring supply up to demand.

Investors should always be versed in the risks of their positions. Consulting with an independent financial advisor can help identify tolerable risk, particularly in relation to other wealth development goals.

What UK Land Investors Should Know About Strategic Land Investments

Strategic land stands alone among land investments. It answers the pressing need for home building by increasing land designated for that purpose.

There are a number of ways in which investors can select land as a means of growing their assets. For some, farmland is attractive simply for its sizeable value increases in the past decade; most owner-investors are interested in a long-term position that requires little work other than to collect rent from the actual farmer. Others choose real estate investment trusts (REITs), a market-traded security that tends to rise and fall with the market’s unrelated stocks and bonds. The buy-to-let landlord is an altogether different investor, willing to take on property management responsibilities in a buy-and-hold strategy.

Strategic land investing is quite apart from these types of investments, even though all share certain characteristics. Land ownership in various forms is about acquiring a finite resource, made increasingly valuable with population growth and the resultant increased demand for housing, food production and commercial enterprises. The following are distinguishing characteristics of this form of land investing:

What is a strategic land investment?

What strategic land does differently is it is about the conversion of land to a new purpose. What may be farmland now can become housing if granted approval by local planning authorities. Once that approval is achieved, the strategic land developers then build components of infrastructure such as roads and utilities according to their design.

Is this asset category right for now?

England and the whole of the UK are in a housing shortage that is aptly described as a crisis. A number of reasons might be cited for this (failure to build social housing, unanticipated high rate of population increase, stringent lending that limits a young buyers’ market, etc.). But as the Government addresses these issues, and as the UK economy has improved, the numbers of people able to purchase a home have increased. Homebuilders want to serve this market, and gradually the pace of building is picking up. But with urban density it’s increasingly important for new land to be available - what property fund managers work to make happen.

There is a need for one million new homes in the UK and they have to be built somewhere.

What is the smartest way to go about strategic land investing?

Most individual investors lack the expertise and capital to go about this on their own. A better method is to identify some alternative investment funds in which a management team is dedicated to the task. These land professionals understand how to pick properties that can be purchased, converted to residential or commercial use and be built-upon with expediency.

Choosing the fund that is best for the investor would be the first step. Some funds involve joint ventures and co-investments with large institutions and investors, all of which should be taken into consideration. What is key is the degree to which the strategic land investment partners can claim expertise in the essential tasks of land site assembly: land acquisition, finance, planning, infrastructure delivery and project management.

For most investors it makes sense to engage a third party, an independent financial advisor, who provides guidance in choosing a fund. An IFA will also identify how much weight to give strategic land investing in the context of an overall wealth portfolio.

What are Joint Venture Partnerships?

The collaboration of talent and capital is, arguably, what makes the world go around. JVPs in strategic land development are a good example of how that works.

Almost all successful business ventures have at their core a talent for collaboration: a sharing of ideas, goals, risks and rewards between parties that enable individuals to accomplish more together than they would if they went about the enterprise alone. This basic concept is fundamental to what forms joint venture partnerships (JVPs).

A very clear application of a JVP and its benefits would be in something such as joint venture land opportunities. This would be in a scenario such as strategic land, where the JVP would convert raw UK land through all the required steps to establish build-ready plots for homes and commercial enterprises. Capital and a broad variety of skills and experience are needed throughout the process. An individual rarely would possess all of these things - sufficient financing and expertise - and therefore many would-be investors would be excluded from participating in the significant asset growth that often comes from land site assemblies. It is JVPs that make this possible.

Joint ventures come in different models, including the following:

Company limited by shares (CLS) - A very common form of a JVP, a CLS company divides share capital into shares of fixed amounts and can subsequently issue them to shareholders. Some companies encourage share ownership by staff, which brings a sense of involvement in the ultimate success of the venture.

Limited partnership (LP) - Partners share directly and proportionally in profits and losses.

Limited liability partnership (LLP) - New since 2000, this is a hybrid that combines the safeguards of a limited liability corporation and the flexibility of a partnership.

Private finance initiative (PFI) - This is most often a way of funding public infrastructure, such as schools and hospitals, with private capital. PFIs are somewhat controversial due to the sense that it underplays public deficit and debt when it is often a more expensive form of borrowing for public entities.

Company limited by guarantee (CLG) and industrial and provident societies (IPSs) - Typically used for non-profit distributing and commonly a source of financing for housing associations.

Joint venture partnerships engaged in raw land and site assembly enable investors to basically buy into local knowledge. This is because the strategic land developers do much of their work “on the ground,” studying local economic conditions, assessing locations, negotiating purchases, presenting to local planning authorities, designing a site and building the infrastructure of roads and utilities. The developers also have relationships with homebuilders, who ultimately buy the house lots and build homes to sell to homebuyers.

Investors should always consider the broad sweep of considerations relative to any investment. The pressing need for housing in the UK is certainly a driver that makes property and raw land more valuable than ever before. But for an objective perspective, investors are encouraged to work with an independent financial advisor who can assemble all variables into a pragmatic, investment-decision making process.

UK Land as a Capital Growth Investment

The greatest wealth over the centuries has been built with land. In a modern age, there are many different ways in which land can yield strong capital growth.

Among the many assets that create capital growth - investment trusts, convertible securities, traded options, fixed interest securities, etc. - it seems that equities get all the attention. And yet UK land, a tangible alternative investment, consistently and robustly achieves capital appreciation. Under certain configurations, in particular raw land that is converted to housing, land can grow significantly in a relatively short period of time (less than five years).

The primary reasons for this are the housing shortage in the midst of population growth and a continually expanding economy. The proper context for all this is the 2008 financial recession and recovery, of course. But continued capital value growth has many fathers. The outcome of the May election has removed worries over Labour’s proposed mansion tax, boosting sales of £1 million-plus residences. Government schemes to loosen up lending to first-time buyers, in particular, have also brought more buyers into realistically being able to afford to buy homes. Even the price of land dedicated to agricultural use has risen for the past several years.

In other words, land is finite while demand for it in all uses continues to increase.

Which is where land-based capital growth funds come into play. Investor groups, assembled by land specialists, focus their money and expertise on raw land for site assembly and to ultimately set up the property for home building. Because it involves the crucial step of achieving council planning approvals for land use changes, this is a way to rapidly and significantly increase capital growth in a land investment.

It bears noting that those investor groups, often called strategic land partnerships, do not typically build the homes even though these investments are driven by the high demand for housing. Their tasks are to identify where housing is in high demand, to buy land in those areas from existing owners, to present and negotiate with local planning authorities (LPAs) on use designation changes, and very often to design the site and build the infrastructure (roads and utilities) that pave the way, literally, for homebuilders to buy and then go to work on construction. Structured correctly, the original investors and later the homebuilding companies complete their development work with a profit.

Other investors might prefer these means to achieve asset value increases in their land:

• Buy stock in homebuilders - Following the May 2015 elections, homebuilder stocks jumped as high as 14.4% (Berkeley Group Holdings Plc) in one day after the Conservatives’ victory. But of perhaps more long-term significance is how new housing starts rose by 31% as of late May. These companies know that buyers can get mortgages.

• Buy farmland - The price of agricultural land across the UK has risen 250% since 2005. However, weak crop prices and other factors suggest more land will be available for sale - which will contribute to stagnant price rises, if any.

• Buy-to-let in hot neighbourhoods - A column in ThisIsMoney.co.uk in 2014 outlined tips for would-be landlords on how to buy buildings or land in up-and-coming districts, which might be distinguished by the presence of niche food chains (independent coffee shops, restaurants and delicatessens), along tube lines a stop or two down from expensive postcodes, where 20- and 30-somethings live and where new grocery stores, schools and motorway or train access is within five miles. Given that a larger share of the population now rents, property made for them is in increasing demand.

Note that no recommended schemes for investors include land banks. The Financial Conduct Authority has determined most land banking schemes to be scams, which have bilked UK investors of £200 million in recent years. These differ from true capital growth land opportunities in that for the latter, the land is certifiably amenable to home building. Land banking scams typically involve land that is far less likely to be developed on any kind of scale.

Investment decisions in land or any other real asset, bonds or equities require a comprehensive analysis of market conditions as well as the wealth building strategies of the investor. It makes sense to engage an independent financial advisor to ascertain what to buy, when and for how long.

The Various Roles in UK Joint Venture Land Investments

The advantages of investing through a joint venture partnership include reducing risk and acquiring the knowledge and skills of other partners.

A huge portion of wealth in the UK and across the globe, today and historically, comes from real estate. What’s less understood, however, is that modern investing in land is often done through joint ventures; in the past it was more of a single-family pursuit, largely those with noble titles. This means that an acquisition and development today are done with teams of people with different assets and skills that, ideally, complement each other.

The simplest means of dividing up the roles is there are funders (investors) and there are property fund managers. Most (but not all) investors have minimal experience in strategic land investing, particularly where it comes to site assembly. This is the process by which raw land is transformed by way of a use designation change, granted by local planning authorities, and where the site is designed and where supporting infrastructure is built. These require specific skills and experience.

The investor obviously provides the financial capital to enable the purchase and transformation of the land. But rather than being completely passive in the joint venture, an investor is advised to engage in the following:

Objectives - Know what the development is about and what factors suggest it will succeed. Real asset portfolio investing typically entails accounting for physical features, such as the location of the site relative to workplaces, transport, schools and such. With a raw land conversion to housing, the local economy and job growth in particular play an essential role.

Timing - Ask how long it will take from start to finish, the end point being when land is sold to homebuilders who complete the task (this process is commonly split between site assembly and construction to amortize risk and to allow experts to complete the project phase they know best).

Relationships - Are the fund managers familiar with local entities such as employers, planning authorities and other political leaders? What about other funders? Do the managers have investors who roll from project to project, clearly pleased with asset growth?

Reporting - Periodic updates on progress are to be expected. There are multiple milestones to be met and investors should be informed if they have or have not been achieved and why.

Profit sharing scenarios - What is the potential return on investment? How might that goal not be met?

Regulatory and tax issues - Some projects are subject to taxation while others may benefit from Government programmes that actually reduce costs to the venture partners. This can usually be determined in advance.

Exit routes - How liquid is the investment? Is the JVP structured such that it is illiquid up to a certain point? When would it be optimal to make a withdrawal, as allowed?

One final point: an investor should always engage a disinterested party to provide an objective viewpoint. This is where an independent financial advisor is highly recommended. They can examine a single investment as well as an entire family portfolio, considering all relative factors.

Is Strategic UK Land a Real Asset Worth Investing In?

Real assets can provide real rewards, but some investments are subject to odd volatility. Strategic land has many solid economic factors in its favour.

It’s understandable that investors might be skittish about investing in real assets. Price volatility is almost the norm for such investments as precious metals, antiques, art and classic cars. Some antique cars rose in value by 257 per cent between 2005 and 2013 (source: Coutts private bank), however that assumes you pick the right model and year, and that your garage and insurance costs are not exorbitant. In February 2015, ten international banks were named by the U.S. Department of Justice and the Commodity Futures Trading Commission for possible rigging of precious metals markets, according to The Wall Street Journal. Real assets sometimes come with real problems.

But we are in an era where UK land, the historically most dependable real asset, is in a class by itself. With little reservation, most investment advisors see a great deal of value growth in strategic land - enough so that any investment portfolio of a good size should allow room for strategic land investments.

There are several reasons for this. Here are the key factors favouring good returns on the strategic conversion of raw land to housing:

1. Shortage of housing - New housing starts in England in 2014 numbered 137,780, up from 112,610 in 2013 - a 22 per cent increase. But the Department for Communities and Local Government estimates the annual addition of new homes should be 221,000 units, and that the country is already one million residences shy of where we should have.

2. Growing population - There are several reasons for this shortage of homes. But chief among them is the growing UK population, found to have increased a stunning 7 per cent from 2001 to 2011. This is due to immigration, higher birthrates and extended lifespans, where our pensioners are able to stay in their family homes longer than before.

3. Shifting sentiments toward expanding housing - A YouGov poll taken around the time of the 2015 General Election found that 67 per cent of adults in England believe that the number of new homes being built should increase. But exactly where those homes should be located is a point of disagreement and, perhaps, some confusion. That same percentage of the 4,500 people polled feel it’s important to protect Green Belt land from development, and even more (83 per cent) think that building on brownfield land should be supported. But when asked about building on greenfield land – distinguished not by location but by having never been built upon - more than half do not oppose building there. There is widespread misperception that Green Belt is universally areas of outstanding beauty, when in fact much of it is not. Further, if housing is located beyond the official Green Belts it creates an exurbia phenomenon that requires greater commuting distances, which is precisely what Green Belts are supposed to prevent. In some cities, swaps of brownfield land are being made with Green Belt acreage, enabling parks within the urban core and expanded housing where it is in close range of workplaces.

4. Alleviate strain of unaffordable housing - The housing charity Shelter maintains that increasing the housing stock at all price levels alleviates price pressure at the lowest levels, reducing rough sleeping and making rents more affordable for young families.

5. Government-sponsored lending assists - With the successful Help-to-Buy programme, first-time home buyers are able to get the deposits and loans necessary to get on the property ladder. At least 70,000 homes were purchased in 2014 under Help-to-Buy.

As should be evident, societal as well as economic factors favour investing in home building. Managers of UK property funds, who identify land that is ripe for use designation changes, lead these efforts on behalf of investors. Once the land is approved for a use change by local planning authorities, they construct infrastructure that provides lots for individual home construction, typically by homebuilder firms.

Should you invest in a real asset of any kind, including strategic land? It’s best to consult with an independent financial advisor who can assess where in your portfolio such an investment might fit.

How to Choose Capital Growth Managers for Your Portfolio

An investment is only as good as the people responsible for managing it. Know the characteristics of qualified UK land investment funds.

It is no small decision to invest upwards of £10,000 in a land development fund. Strategic land in particular - where raw property is taken through the planning authorities’ process and eventually turned into homes and businesses - can provide good returns on the investment. But every investment carries risk.

One way to manage that risk is to become familiar with and confident in the capital growth managers who oversee the investment. These are the people who find investors, buy the land, achieve zoning change approvals, then design and build infrastructure to support what will be built on site (after that is complete, the land is sold to homebuilders to complete the process).

But who are the investment managers to work with? In choosing these critically-important partners, look for the following characteristics:

• Knowledge of the specific market area - This may seem a simple thing, but there is a great deal of investing that happens at a distance, with paper-only knowledge. The nature of investing in UK investments - as opposed to investing overseas - is that fund managers as well as investors themselves can visit the site and assess the environment around it, the existing and needed infrastructure, and other local economic growth factors.

• Familiar with inclinations toward planning authorisations - Part of this on-the-ground nature of investing and building is that the fund managers have face-to-face familiarity with local planning authorities and the communities served by the local council. There is a good deal of study as to what communities need and how they want to grow. A strategic land development proposal will be structured to meet their needs.

• Expert at elegant deal structuring - Acquiring land, getting approvals, and designing and developing infrastructure is a process involving many parties, in addition to the investors and homebuilders who each have essential roles in the process. Everyone has to be pleased with the plans and the outcomes. The property fund partners who orchestrate the programme from inception to completion must develop the strategies, pricing, and timelines, and generate the political and public support necessary for a successful completion.

• Communicative - Part of the deal structuring includes properly educating the many parties involved on what happens, when and why. No project goes according to original plans, so changes and adjustments - and problems - need to be shared in a timely and meaningful manner.

• Flexible, adaptive and creative - Did we mention no project goes exactly according to original plans? This does not necessarily mean the project is scrapped or even less profitable. A creative approach, based in solid industry knowledge and expertise, can turn challenges into opportunities.

• Experienced - All of this is possible when your fund managers have been working on development, planning approvals, financing and related matters for many years. The fund managers’ past successes are a good gauge of this - as is their ability to respond to questions about anything related to the programme.

These are assessments you can make on your own or in concert with other investors. But for a truly objective look at a fund and where the investment would fit relative to your own portfolio, speak with an independent financial advisor. His or her job is to be purely objective.

How Real Asset Managers Approach Land Investments

Real assets of all kinds, including land, have performed well, years after the financial crisis. But managers of these assets need to know their category.

Real asset managers are different from financial brokers in many regards. Chief among them are how they understand the assets themselves, beyond performance metrics. Rare antiques and art require people who are versed in art history, for example. For people who trade in gold, an understanding of the market and global geopolitics is a requirement. A real asset manager who works in land investments is perhaps the best example of this distinction.

Investment in UK land is a very complex and detailed area of expertise for asset managers. For investors, this might be reassuring because of the heightened degree of interest in land and property. Particularly now - more than a half-decade since the global financial crisis - land investments retain an attraction to investors for several reasons:

• Land assets outperformed securities - In the first 13 years of the 21st century, the world equity index (performance adjusted for inflation) generated an annualised return of only 0.1 per cent. Bonds did better, with an annualised return of 6.1 per cent, benefiting from a low-interest rate environment that could change soon. Real assets including land can and often do perform much higher.

• Land assets are hedges against inflation - Real assets, including land, tend to rise in value with inflation. Fund managers value such things as farmland and forestry holdings because their products rise with inflation and increased yields (food and wood) over time as well. Considering strategic land investments, which prepares and converts raw land adding into housing-ready developments, the demand for housing and price increases that outpace inflation drive home this point.

• Land assets are non-correlative to financial markets - Land itself lost little value in the financial crisis while the financial markets were in a tailspin.

But to be clear, working in land investments comes with requirements:

• Illiquid, for better or worse - Almost all real assets cannot be disposed of easily. Investment in a joint venture land opportunity, for example, will come with contractual time parameters. It may be that the investor can exit after 18 months or after several years. Real estate investment trusts (REITs) are the exception, traded as market securities (and as such are subject to price volatility).

• Requires specialised skills - Managers of UK real asset funds understand local economies, the suitability of some land over others for building, the predispositions of local planning authorities, home site design and infrastructure. It’s far from a market security buy-sell scenario – and just as importantly, it rewards strategic and creative thinking.

Investing in any form comes with a balance of risks and rewards. But those risks can be mitigated with a balanced portfolio - involving land and more traditional equities, bonds and such. The input of an independent financial advisor can help identify the right balance.

How Investors Can Choose the "Right" Property Fund

Many investors choose a property fund to optimise asset growth in UK real estate, particularly in the residential sector. But not all funds are managed equally.

The draw to invest in real property in the UK is instinctive and time-honoured. For example, the term “landed gentry” speaks to the historic nature of wealth accumulation through ownership and transactions of real property. Land is a limited resource, with value variations that are determined by a host of factors (location being one of the most important) and which can change - to the benefit of those holding title.

But the categories of ways to invest in land or buildings are broad - ranging from commercial to industrial to residential, in and outside of London as well as far away from the Capital City. What surprises many people is the fact that across the entire country, residential property comprises the single largest asset class, valued at over £5 trillion.

Not everyone wants to own property that they must manage, avoiding the buy-to-let phenomenon that has proved popular among some in the face of a growing renter population. Others lack an interest in the business of actual homebuilding. Instead, individuals and institutions are turning to property fund management teams who manage their investment money in development programmes.

These teams are made up of real estate development professionals who acquire then improve land in some way before selling it again to home builders or, if they also build, to home buyers (more typically the home builders buy lots after site assembly tasks are completed, allowing them to focus on smart construction for the market). So for the investor, it’s a matter of choosing a development management team or a homebuilder to invest in.

So how does an investor choose the right property fund managers? He or she might use this as the checklist for deciding which team earns their trust:

Ideas and rationale for choosing a location - The property fund partners should be able to demonstrate rigorous research that helped them identify areas where the largest up-value potential exists. This means finding land that can be purchased for a price that allows a sizeable margin when resold.

Track record of success with planning authorities - That value increase is most significant - and essential - when planning authorities grant a use change to the land.

Skilled design - The value of land is also enhanced when the design of the development meets modern expectations. Increasingly, a sustainable focus on smart (sustainable) infrastructure, landscape and quality-of-life factors are incorporated into the scheme.

Skilled asset management - The firm in charge of the joint venture land opportunity will spend money on infrastructure development such as roads and utilities. How well they are able to optimally invest to achieve a maximum return plays a key role in the total asset growth realised by the investor.

Choosing any kind of partner in an investment is important, but the investor need not do it alone. Speak with an independent financial advisor for guidance on all strategies and decision-making relative to wealth accumulation.

How Advisable is UK Land as an Alternative Investment?

There are many ways to invest outside of the FTSE and real estate investment trusts. Land for future housing development is an enticing example.

Oh, for the Wisdom of Solomon, right? The legendary, judicious king of the Old Testament is believed to have advised in Ecclesiastes to diversify one’s investments. As it reads in Chapter 11, verse 2: “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.”

Thus we’ve seen investment gurus ever since advise on why portfolio diversification is a smart strategy. It bears noting that historians place King Solomon as the richest human to have lived prior to the Industrial Revolution, with wealth the equivalent of £1.37 trillion, adjusted for inflation.

Nobel Prize winner Harry Markowitz (Economic Sciences, 1990) put alternative investments into a modern, post-War context by devising the optimal models for investing that overcome the problems of cyclical, market-traded securities. For the investor, choosing land and other alternative investments avoids the risk of a portfolio that is vulnerable to the deep troughs where most other investments dip in correlation to each other.

These non-market securities can range from fine wines to art, gold, antiques, built property (housing, commercial and manufacturing), airport parking (this is relatively new) and land. Within the Markowitz model, it’s easy to see that when the stock market is down very often the gold or art markets are up.

A Solomonic-level disaster visited England and the rest of the world in 2008; this time, the financial crisis pulled down many alternative investments with it (Markowitz says that can happen in extreme circumstances). But the recovery since has seen land and housing values in the UK rise back much more quickly than other parts of the economy. Real asset funds that are in land that is converting to residential development are a good example.

What makes land so special? It’s because land has several characteristics that make it “non-correlative,” that is, out of sync with market securities. Some of those characteristics include:

Land is a “wealth battery” - The finite nature of land, particularly in the British Isles under conditions of an expanding population, engenders it with value that generally correlates with, or exceeds inflation. Think of it as a place to store money, similar to a bank or a fuel cell, where it is safe and will actually build in “power” (asset value).

Land investments are tied to larger geographic/economic strengths - Investing in land in the UK is smart for different reasons than investing in land in Latin America, for example. But in both cases the investor can assess the intrinsic nature of what will make the land increase in value (the very strong demand for housing in the UK is a key driver there).

Land use can change - Some land derives its value from agriculture or forestry and the conversion of one to the other. In other cases, land that is not developed can achieve local planning approvals that greatly increase its value. UK Property fund managers understand this scenario very well: they focus investors’ money on tracts that would serve a market and council need for smart development that meets national goals for home building (as required by the UK Government’s National Planning Policy Framework, administered by the Department for Communities and Local Government).

One does not need the wisdom of Solomon nor Markowitz to invest in market securities or real assets if they work with a qualified independent financial advisor. The balancing of risk as well as life-stage planning enables advisors to devise a smart individual strategy.

Why House Prices in the UK Might Rise Faster Outside of London After 2015

For several reasons, the rapid rise in residential real estate is affecting the entire country. The 2015 national election results should cheer investors in housing.

That national 2015 election is over. Now homebuyers and sellers can vote with their sterling.

In the run up to the election, politicians from all sides spoke of the nation’s housing woes. Too little supply for too much demand was the problem, most agreed, with different ideas on how to fix it. David Miliband and the Labourites bandied about a “mansion tax,” along with rental increase caps, which arguably dampened sales in London and the rest of the country in the first few months of the year. House building also dipped in early 2015, as did prices, as uncertainty kept many buyers and builders at home.

But within hours of the sweeping election results announcements, real estate agents in London were popping champagne corks. “Over the next five years we think that capital values in the Prime London residential markets could double,” said the executive director of estate agent Douglas & Gordon. An agent with Sotheby’s told The Guardian, “It is going to be an exciting to be in the London market over the summer!”

There is general agreement that much of the concern, now relief, over the mansion tax was London-centric. Price run ups there recovered much more quickly after the recession of 2008 than outside the capital city. In 2014, average house prices throughout London went up by 17.4% while in the rest of the country property values rose at 10%, still robust but obviously at a lower rate than in the capital. With sufficient market demand, investors such as those involved in alternative investments in UK land, and homebuilders, focused on housing delivery, should be encouraged about ramping up development.

New buyers in the market might be daunted by the price hikes - or prompted to take advantage of the various Government-sponsored schemes to help them. Those include the Help to Buy programme, which was responsible for more than 70,000 home purchases in 2014. Another factor is that there is some migration of younger families out of London, where they reportedly are finding favourable quality-of-life factors in places like Birmingham, Manchester and Leeds.

Here are what the prognosticators are saying about UK home prices in the months and years to come outside of London:

• “Estate agent Savills predicts that prices will increase by 19.3 per cent over the next five years across the UK and by 10.4 per cent in London.” (Daily Express, May 8, 2015)

• On its own website, Savills predicts the following house price value increases through 2016: Midlands, North and Wales 4.0% increase; Scotland 4.0%; Wider South of England 4.5%; London prime suburbs 7.0%; London inner commute 7.0%; London outer commute 6.0%. Prime London will rise 7.0%.

• Savills predicts the following for year 2020: Midlands, North & Wales 20.4% increase; Scotland 17.5%; Wider South of England 22.2%; London prime suburbs 25.7%; London inner commute 25.1%; London outer commute 24.5%. Prime London will rise 22.7%.

This is all good for current owners, of course. Buyers, clearly on the losing end of these hikes, still have the advantage of rising wages and easier access to credit - easier than in the past several, post-recession years, that is. And for those homebuilders and financiers engaged in real asset investing (e.g., turning land into housing developments), the opportunities placed before them are considerable.

The Sotheby’s International spokesperson put it this way in an interview with PropertyWire.com: “Increasing the supply of homes is the only way to truly overcome the hurdles that the housing market places for the majority of buyers,” she said. Lucian Cook, Savills UK head of residential research, said: "There remains a pressing need for substantially increased new build supply and a far more co-ordinated long term housing strategy for the UK."

Investors can do good for society and their country by putting money into all kinds of development. But smart investing also means tapping into objective analysis. Speak with an independent financial advisor to learn what kinds of real asset investing works best in your overall wealth management scheme.

The Current State of Foreign Buyers of UK Homes

What happens abroad affects regular Brits at home - more specifically, the price of the homes they wish to buy. Blame it on the stability of the UK economy.

For a number of years it has been well documented that rich Russians, Chinese, Saudis and others from outside the UK have been buying up pricy real estate in London. That has actually expanded to cities elsewhere in England. And with the outcome of the May 2015 elections, combined with continued instability abroad, that trend may not reverse itself for some time.

And it does affect ordinary citizens in the UK. Part of what drives up the cost of real estate throughout London has been the extreme degree to which the most expensive homes in Central London are sold to foreigners, almost all for cash seeking a safe, stable haven. In September 2014, The Telegraph reported that 20% of buyers in Westminster, Kensington and the City of London were sold to people from Russia, Italy, France and the Middle East. Among the top boroughs favoured by foreign buyers were Camden, Islington and Hammersmith and Fulham.

Most maddening to native residents of Great Britain is the report that 60,000 of these homes in London sit empty. Few of those buyers actually live here as they hold those properties as financial assets. One estate agent told The Telegraph that some developers are specifically building at very high luxury levels specifically to attract these buyers; the average price for prime property in Central London reached £4.7 million as of the middle of 2014.

At mid-price levels at city’s edge and elsewhere in England and Wales, developers are building homes that are affordable to the middle class. For example, strategic land developers identify land that can achieve planning approvals for conversions to residential property. This helps fill the yawning gap of the UK’s housing shortage, particularly where homes are needed to house families near emerging companies outside London. That said, The Daily Mail reported in October 2014, “some Chinese buyers who can pay in cash are touring northern towns to find investment opportunities. Experts fear this trend will force up prices for ordinary families.”

In the run-up to the May election, the Labour party spoke of a mansion tax that might diminish foreign interest in buying in the UK. But with that party’s loss, the idea of this type of tax was trounced as well. Estate agents who work with overseas buyers reported an immediate surge of interest on the very night the election results were reported.

Global events play a role in this. Sanctions against the Russians for their aggressive tactics in Crimea and the Ukraine have had an effect. International sanctions against the country in 2014 have challenged the rouble, making those purchasers more expensive to the oligarchs and “medium rich,” who, on the margins, might retract their buying.

Investing in real assets such as land and real estate is nothing new to the UK. However, many argue it should be in commercial property or residential development instead of finished residences that go unoccupied. The Cameron government will undoubtedly wrestle with this question in the years to come.

Investors need to consider what asset classes fit their overall wealth strategies and objectives. The most objective advice can be found with independent financial advisors.

Planning by Appeal: How UK Developers Can Challenge Adverse LPA Rulings

If local planning authorities rule against a proposed housing development, it is not the last word. An effective appeal - and some plan changes - can change the ruling.

Residential development is perhaps the single most important tool for overcoming the shortage of housing in the UK. But as development teams - investors, architects, planners and homebuilders - understand well, not all proposals for building homes at scale are approved by local planning authorities. Capital growth land opportunities can wither on the vine if NIMBYism raises its head or if a poorly conceived or articulated plan is rejected by the local council.

The local planning authority (LPA) may reject the proposal outright or attach conditions to a proposal that the developer finds untenable or prohibitively costly.

But a first-pass rejection does not mean the plan will never move forward. The National Planning Policy Framework (NPPF) provides an appeals process that can save a project, typically with changes that meet pre-established criteria and which will benefit both local and national objectives.

How can developers effectively navigate this appeals process? The Government’s planning portal website (planningguidance.planningportal.gov.uk) offers straightforward advice:

1. Engage with the planning authority to discuss what changes to the proposal would be more likely to gain permission. It may be possible to make smaller changes without incurring additional charges.

2. If the local authority missed its own deadline for making a decision, within the statutory time period, the applicant is entitled to appeal it on that basis alone. It may be advisable, under most circumstances, to engage with the authorities on timing such that the relationship bears a sense of cooperation.

3. If an appeal is necessary, there will be deadlines placed on the applicants for submitting the appeal. For non-major applications that deadline is 8 weeks; larger applications are allowed 13 weeks to file an appeal; and for applications that require an environmental impact assessment there is a 16-week deadline.

Of course, it helps to know who to work with after a first proposal was rejected. Appeals are decided by Planning inspectors on behalf of the Secretary of State, who has the power to override those inspectors if he or she so chooses. This is known as a recovered appeal, which can happen under a variety of special circumstances:

• Larger projects involving sites of 5 hectares - key to land fund managers - or those, which will lead to more than 150 units of residence.

• Projects of regional or national consequence, which may be accompanied by controversy.

• Proposed projects which involve novel or legal issues or difficulties.

• Developments that pit one Government department’s interests or objections against another’s.

• Projects that can impact Government policies regarding climate change or energy.

• Proposals of significance (9000 square metres of floor space) that touch on a main town centre.

• Proposals that would significantly involve a Green Belt, including those that affect traveller sites.

• Proposals that could adversely affect “outstanding universal value, integrity, authenticity and significance of a World Heritage Site.”

Where do appeals succeed most? Data from the Department for Communities and Local Government indicate those authorities with the fewest appellate overturns are those with up-to-date plans, as required by the NPPF (roughly half of all councils have a five year plan, as otherwise mandated). But the difference is small. Where plans were in effect, between 2.1% and 6.1% of initial decisions were overruled; where there were no plans in place, 7.2% of decisions were changed on appeal. A report from the Communities and Local Government select committee urges councils to proactively establish their plan for a five-year housing land supply, as that is a national imperative. Real asset fund managers necessarily have to approach development on unused land where it can serve community growth interests as well as business profitability.

Few can argue against the collective benefits of development, even when the challenging issues inherent in changes to communities are forced into discussion. Unlocking unused land to serve the needs of a growing population can help alleviate the problems of overcrowding and delayed household formation.

But investments in land and development should be entered into by individuals from a personal perspective as well: will the investment balance with other assets in an individual’s or family’s wealth development strategies? An independent financial advisor will be able to guide the investor with objectivity.

How Would a National UK Housing Investment Bank Work - Or Not Work?

The British housing shortage might require an infusion of ideas if not more money. But would a new government bank replicate what private investors already do?

Bandied about by housing advocates for the past several years has been the idea of a national housing investment bank. It’s something that has worked in other European countries - France, Germany and the Netherlands, in particular - and it specifically addresses the critical housing shortage in the UK.

But does something like a housing investment fund, a public-private hybrid, replicate what is already here? Might funding for housing from the private sector, such as joint venture partnerships that unlock unused land for building and which fund infrastructure development, essentially accomplish the same things (they don’t directly, but more on that below).

First, understand what such a bank would provide:

• A means for channelling pension funds into income-producing investments (funds would be used to develop rental properties, which have predictable cash flows).

• Attract funds from a range of sources, with the backing of Government to boost the confidence of those investors.

• A way to test the concept and then scale it up if successful.

• A way to increase total housing construction output from 120,000-150,000 homes per year to 220,000 homes, what housing economists believe is necessary to close the considerable gap of need in the inventory.

Advocating for the not-for-profit fund are the National Housing Federation, the Institute for Public Policy Research and the housing charity Shelter UK. It could be an independent entity, rolled into the existing Green Investment Bank (focused on environmentally-beneficial infrastructure) or as part of the British Business Bank. Ideally, it would be focused on reducing financing costs for affordable housing providers.

But not everyone agrees. It won’t do much to lessen the housing shortages, says Hannah Fearn, an editorialist with The Guardian. The British way of investment in housing, says the writer, prohibits a wholesale lifting of the concept from the Continent and successfully translating it to “our own chaotic private rented sector,” she writes. “We can’t assume that a new investment bank would automatically pull in the funding anticipated. Europe has had an easier job convincing institutional investors to consider housing as a viable asset for years. We can’t be sure that simply recreating the bank at the centre would change cultural attitudes here.”

Fearn also argues that housing associations, which would be the biggest users of such a bank, already are successful at securing loans on the open market. She also suggests that the uncertain successes of Big Society Capital, called the “big society bank,” doesn’t forebode success. It may be setting up financially vulnerable charities to take on inadvisable risk.

What Fearn suggests is that housing associations and councils meet with developers and investors (such as those most interested in capital growth planning) to develop funding vehicles that meet the local need - something that would avoid the costs of a new institution. Better that the money goes to housing than a layer of administration.

Investors in housing come in all stripes, including institutions as much as individuals. Those people who consider entering into real estate finance should speak with an independent financial advisor to discuss what fits their best investment strategies.

How Does the Ageing of the Baby Boomers Affect the UK Housing Market?

Grannies live alone in draughty three-bedroom homes while families with several children cram into two bedroom flats. Maybe we can switch things around.

An interesting imbalance of home ownership in the UK by age groups suggests there’s a solution present in two problems. That is, ageing Brits have dwindling cash but larger houses while younger, working families lack for homes even as they earn an income and add children to their households. Wouldn’t it work out well if they could switch places?

From seniors’ perspectives that might make sense - although, it would perhaps work best if they could live in homes appropriate to their needs, not just any smaller flat. It’s a fact of British demographics that the older side of the Baby Boom generation and those born before the War, aged 65+, now number 11 million. Add to that how one third of the UK population is over age 50. The vast majority of them own their homes, cumulatively valued at £1.23 trillion, but many have homes that are draughty and in need of updating – yet they lack the money to invest in much. In other words many are capital rich and cash poor.

This is not to say that all housing shortages can be solved if people just moved to where the right number of bedrooms exists. Indeed the homebuilders and investors, including land fund managers who convert unused UK land to home development, have their work cut out for them.

But with millions of homes that are larger than needed and harder to maintain, a partial solution might be in facilitating these progressions. Here are a number of ways that might happen:

• Build more age-appropriate senior housing - Less than 3% of new homes being built are designed for the specific needs - physically, and within access to services and social needs - of an aging population. Urban retirement villages, such as those seen in other countries, should be part of the UK’s housing priorities.

• Address certain financial/tax issues - The Council of Mortgage Lenders (CML) published a manifesto on the UK’s aging population and how it will affect the mortgage industry. (Clearly, the unleashing of paid-for properties, worth the aforementioned £1.23 trillion, onto the market is a business opportunity for them.) They advocate for the Government to find solutions to “the collision of new mortgage rules and the forthcoming pension reforms.” Further, the CML suggest that in general the country needs to provide for “better pathways between the mainstream mortgage market, lifetime mortgages and downsizing.”

• Incentivise renovations - Local authorities incentivise renovations, such as energy efficient upgrades, to varying degrees. Residents of England and Wales can get up to £7,600 back to offset the costs of installing energy efficiency measures (solid wall insulation, new heating systems, etc.). But this could be expanded upon.

• Free up land for more building overall - Whether building for seniors or younger people, more land likely needs to be unleashed to accommodate a growing population. This is what investing in real assets is about, to get local councils to approve land use changes where needed, paving the way for improved infrastructure and actual building.

It’s ironic that so much focus is on getting younger people onto the property ladder, when in fact many may wish to exit from their top rung.

Investors who find land and built property of interest are following a time-honoured tradition, even if the nature of real estate has changed. For objective analysis, contact an independent financial advisor to identify what kinds of assets fit your needs and goals.