What in the UK Economy Attracts Foreign Investors?

There are specific reasons that foreign investors are attracted to the UK economy.

Financial instability in the Eurozone has driven an influx of European and other foreign investors to the UK. Buying a second home in London is a common tactic.

A handful of cities around the world would like to lay claim to being the centre of the known universe. New York City has long positioned itself as such, while the emergence of the Chinese economy might give either Hong Kong or Beijing that title. Abu Dhabi, Kuala Lumpur or Singapore might make similar claims for legitimate reasons – and truth be told, qualifying criteria for the title varies considerably between individuals. But if interest in owning property somewhere is any indication, a 2012 survey by the real estate agency Cluttons (in partnership with VPC Asia Pacific, a consulting firm) found that worldwide, 57 percent of wealthy investors identified London as their top target market for property purchases.

It’s more than an aspiration. Low interest rates in Asian currencies, which have appreciated well against the British pound and American dollar, have helped many buyers to purchase properties in Kensington & Chelsea as well as other desirable districts. Many buyers are purchasing residences for their children who attend English universities, as they are averse to paying rent on housing for even just a few years when they might be able to achieve capital growth from such an investment. Also, when non-residents realise capital gains on a UK asset they are not subject to the country’s capital gains tax (profits derived from rental properties, however, are subject to taxation).

The Eurozone crisis is widely attributed for leading to the investment in residential property in the UK by non-Brits. The head of residential research at property agent Knight Frank told a blogger in 2012, “The more instability you get in the Eurozone, the more the London property market benefits.” Indeed, Spanish, Portuguese and Italian buyers of English properties have jumped by two and three digit percentages in the past two years. Greek buyers, too, from old wealthy families, are investing in rental properties as well as for their own family members.

This seems to be a clear indication that staying out of the Eurozone has been a plus for the real estate industry and for owners of property. It does not, however, change the dynamic for British citizens who find housing difficult to afford. The financial crises of the past several years in combination with a dearth of home building have failed to provide adequate housing stock for middle class buyers. Land investment is shifting toward building the infrastructure and achieve local planning commission approvals for the conversion of agricultural property to housing, either for sale or to-let.

Whether foreign or UK-based, land investors and home purchasers should speak with an independent financial advisor before buying any property, developed, raw or strategic land. The investment needs to fit an individual’s overall portfolio needs and expectations.

CEBR Predicts 15% House Price Rise and What It Means to Investors

Investors take note: The CEBR predicts a 15 percent house price increase.

The economy is on a slow but steady upswing, reflected in part by a prediction in house value increase. Land investors might benefit from this.

Is land a high-return investment? No, says the Centre for Economics and Business Research (CEBR). But it still might be better than the alternatives.

CEBR is predicting between a 14 percent and 16 percent rise in house prices by 2015. For homeowners and builders, that is relatively good news after the price dips of 2007-2009. The bleeding is stopped, the patient is recovering. Raw land prices somewhat mirror housing prices, with differences in niches. But no one would call this a boom.

It is a curious time for real estate, particularly those who approach it on an investment level. How properties and property funds or land perform against the alternatives – traditional stocks and bonds, or alternatives such as private equity, hedge funds and precious metals, for example – is the real question. In each of those categories in recent years, there has largely been slow growth, loss or volatility.

Investments in land can be attractive when approached with an appropriate set of expectations and knowledge. To wit:

Supply and demand curves suggest asset value growth. There should be a housing boom. The population in the England and Wales is on a steady growth curve: seven percent over the past decade, probably a faster rate of growth from now through to 2020 and beyond. Meanwhile, housing construction lags woefully behind because banks are not lending to builderss. The government however has introduced schemes such as Help-To-Buy to ease financing pressure on buyers.  It seems inevitable therefore that house prices will continue to increase.

Returns in three to five years, more or less. Well-managed land investments are approached with a get-in-fix-and-leave strategy. That is, after the purchase of raw land, the specialists appeal to local planning authorities to rezone the land to serve local economic interests, which includes additions to the housing stock. The Localism Act of 2011 encourages this where prudent. The investment fund may build streets and sewers and install other utilities as needed – then sell to a developer who will build according to market demands. Good land investment fund managers will know from the outset about how long this will take.

Location is everything. Housing prices are high and getting higher in London. But at the same time homes in the North East and Scotland are losing their value. For land investors, it has to be approached on a very local basis, with a solid understanding of where development will find a ready market. This is typically where local employment needs are growing, sometimes due to a large, single employer.

Investing in land is a substantial commitment; one that the investor should expect will require £10,000 or more as an entry-level position. Investors should consult with a personal financial advisor to see how land investments affect their tax status, where it fits into near term needs and if the investment fund is well managed.

So, It’s a Free-for-All in Land Planning?

Is it a free-for-all in land planning?

Well, not quite!

The Government is proposing some significant reforms to "provide a comprehensive plan to unleash one of the biggest home-programmes this country has seen in a generation," in the words of Prime Minister David Cameron.

The proposed reforms include the following:

• Large commercial and residential applications will be directed to a major infrastructure fast-track system;

• The government will invest in housing sites to create 5,000 homes for rent at market rates;

• The Planning Inspectorate has been instructed with immediate effect to divert resources to prioritise all major economic and housing-related appeals;

• Affordable homes will not be required where it can be shown that to build them what make a scheme unviable;

• There will be a measure to allow developers the chance to seek additional time to get their sites up and running before planning permission expires;

• Developers will be able to opt to have their planning application determined by the Planning Inspectorate instead of poor-performing councils.

Other measures include:

• New legislation for Government guarantees of up to £40 billion worth of major infrastructure projects and up to £10 billion of new homes. The Infrastructure (Financial Assistance) Bill will include guaranteeing the debt of housing associations and private sector developers.

• 16,500 first-time buyers helped with a £280 million extension of the successful "First Buy" scheme, which offers aspiring homeowners a much-needed deposit and a crucial first step on the housing ladder.

The Governments see an infrastructure and house-building programme as a key factor in delivering a prosperous economy; as in the 1930s, we are going to build our way out of the recession. Eric Pickles, Secretary of State for Communities and Local Government, said, “This Government wants to get the economy growing. To remove unnecessary red tape. To support locally led sustainable development.”

The above measures are to be applauded. The planning system will remain fundamentally intact; however, measures to reduce bureaucracy and promote an efficient, timely planning system, allowing good-quality development to proceed quickly, will provide the infrastructure, jobs and economic boost necessary for the UK economy to thrive.

~ Anthony Brindley, Lucent Group UK ~

Reasons Why the Time is Right for Land Investments

Now May Be the Golden Moment for UK Land Investments

Key economic factors including population growth, a housing shortage and a recovering economy can lead to rapid land asset value growth.

Almost everyone in the UK with assets to invest has some experience of buying built property. Whether in London or Manchester or Cardiff, the suburbs or the countryside, we are familiar with how to price comparable residential properties, how to estimate what needs to be spent to upgrade the property and what growth potential exists in a particular home and its surrounding neighbourhood. But when it comes to purchasing undeveloped land as an investment, much of this experience does not apply. There is a whole different set of variables that make it a different and, arguably, more challenging acquisition/investment.

That said, it is a good time to invest in undeveloped strategic land. Several factors combine for a “perfect storm” of advantages to the land investor. They are:

•    When land values are in a trough – There has been a great deal of loss in the global recession that began in 2007. But from every down comes an up, in this case the depressed prices of much all real estate necessarily precludes a future recovery.

•    The protracted nature of this recession – While each investor acts according to wherewithal, objectives and opportunities, the economic downturn has altered how investors think. Most are dissatisfied with the volatility of market-traded securities (stocks and bonds), such that many have migrated to alternative investments. Those who opt for land either have a honed acumen for real property or they work with property funds that are professionally managed.

•    When demand for land development is high – There can be any number of factors that drive a value increase in any particular property. But the key driver in the current economy is population and a shortage of housing. Companies looking to establish operations have to consider the available labour pool; in some municipalities there may be an actual shortage of human resources due to a dearth of appropriately-priced residences. These municipalities welcome development and are more inclined to change the land designation to residential and commercial from other uses, such as agriculture.

•    Where special regional factors can create particularly strong investment opportunities – The scenario for the housing-worker equation is different from, say, what is available in London versus towns in the southwest, in Wales and the Midlands.

The importance of working with professionals in making an investment in land cannot be overstated. Undeveloped land is a specialized area that offers great opportunities through land site assembly, but an individual investor is strongly advised to speak first with a qualified personal financial consultant to understand the options, risks and rewards.

Do Real Asset Funds Make Sense in the Current Economy?

How Current Economic Conditions Can Favour Real Asset Funds

Real asset funds in land offer advantages not found in market-traded securities. Current economic conditions in particular provide distinct value growth opportunities.

Every time period offers value growth opportunities for investors. Implicit in that, of course, is the fact that many variables make for a dynamic investment landscape – what worked two years ago may not work well today. Factor in as well that no two time periods are ever exactly alike. A professional analysis of every property is necessary, and investor expectations need to be in line with the nature of each investment.

A Reuters news agency report in late September 2012 cited “big falls in trading over the [preceding] summer” on the London Stock Exchange, which it attributes to economic uncertainty in the Euro Zone (a trend that began in earnest four years earlier).  This then leaves investors with a dilemma: if the exchanges provide little opportunity to make money on stocks and futures, where does an aware investor go to invest?

The answer for many largely lies in real assets and real asset funds. Real assets range from art and antiques to hedge funds, built commercial property and undeveloped land. This latter category lends itself to ownership in funds, as when a consortium of investors purchases property for either holding to lease or sell at a later date, particularly if the property can be rezoned for different purposes. This latter scheme allows the UK land investment fund to increase value under the right circumstances.

Land value growth is very property-specific, of course. Consequently, several factors need to be considered when making a land purchase:

•    Is land value loss possible? Some properties can decrease in value, which a professional land investor should be able to avoid. Municipal decisions on zoning can adversely and positively affect value growth, which again is the province of a real asset fund that is competently managed.

•    More people, inadequate housing. Two important and related factors in the UK economy are population growth juxtaposed with a housing shortage. Even in recession, the overall population grew from 2001 to 2011, an overall increase of 7 percent or about 170,000 people per year. The recession has slowed construction of new homes, however, exacerbating the shortage – and creating pent-up demand.
•    Business cycle recovery, increased demand. A 2012 Financial Times global survey confirmed that, as a rule, population increases are a fundamental part of economic expansion. In towns and counties where employment is growing – most growth cycles still have geographical winners and losers – the demand for land development is particularly keen.

All of this suggests that very real opportunities exist for real asset value growth that is concentrated in undeveloped land and, perhaps as much, in developed real estate. The key task for would-be investors is to find the professional fund managers who understand property, municipal inclinations to growth and where regional economic factors (such as employers with ascendant enterprises) favour a concentration of growth. This is often referred to as land site assembly.

For more information on land asset funds and strategic land development, contact a qualified personal financial consultant.