Land Development in the UK: Seven Rules to Guide Investors

The significant increase in land value that comes from converting open lands to housing is hugely attractive. But newer investors need to know the rules.

Real estate investing in the UK is a landscape of great contrasts. While millions wait to find affordable housing – more often today renting, less often buying – there are investors ready to put money into building new homes to accommodate ready tenants and earn a fair profit in the process. In additional to real estate companies and individual investor-landlords, more recently institutional investors are getting into the game.

The prospect of turning open land into housing is of course very attractive. This can mean raising the value of agricultural land priced at £4,000 to £10,000 per acre to £200,000 or more per acre when local planning authorities grant permission to a use designation.

But if it is so attractive, why isn’t everyone doing it? Simply this: because such planning permissions are very hard to come by. Also, there are many factors that distinguish land with development potential from that which has none or very little.

But strategic land development nonetheless can yield great returns on investment. There are pitfalls to avoid and opportunities to seek out. Here are seven rules to follow that can help the UK land investment funds investor find worthwhile asset growth:

1.    Determine if you are working alone or with partners – Some of the world’s wealthiest people achieved that status via real estate. But most of them had teams of advisors and their own professional skills to inform them where opportunities were good and not so good. Partners not only help spread the risk but can also provide important expertise.

2.    Determine if you need the help of land development specialists – An investor group might work with land development professionals who study the markets on an on-going basis. These specialists often initiate the gathering of investors and earn their fees in part due to their knowledge of planning authority predispositions.

3.    Be realistic about housing demand in that location – The least expensive land is located away from the most densely populated cities because demand there has been light. But if a new employer wants to establish a large workplace in a smaller town, there may be a strong opportunity to build in that location. Anticipating any such local economic factors is a skill of the most successful real estate investors.

4.    Identify if the land has planning permission potential – While this might appear to be a simple matter of applying for a use change, it simply isn’t. Land use reforms, decentralizing authority to local planners, has helped. But those people who are professionally engaged in land use changes are more likely to find success in this area.

5.    Self-build or sell to a homebuilder? – This is the question that largely depends on individual skill sets. Many investors own the land up until the point where houses can be built, but then sell them to homebuilding companies. Why? Builders know how to construct with efficiency, as well as how to identify what the market wants. At the same time, undertaking all tasks from raw land to selling to the first resident allows for maximization of profits.

6.    Avoid dodgy land banking schemes – There are investment schemes that prey on investors who are new to this asset category. Typically, land that is highly unlikely to ever be sold for development or achieve planning permission is offered at an attractive price. The scheme representatives will overstate the chance to resell at a profit – proving the axiom once again, that if an offer sounds too good to be true it probably is. Qualified strategic land investing programmes will include a full prospectus that clearly outlines the marketability of properties.

7.    Check the Land Registry – If a land development scheme still seems attractive to you, at least know the register of title – that is, the ownership rights – are in order. Visit www.landregistry.gov.uk for more information.

Investors in land likely will make handsome profits over the next two decades due to the increasingly critical housing shortage. But buyer beware: not only should each investment be investigated thoroughly before proceeding, but one should also determine where and if capital growth properties fit into the whole of an investment portfolio matters. Consult an independent financial advisor to get his or her objective assessment.

How Greenbelt Spaces In the UK Can Be Protected, Even as Land Development Increases

Can development lead to better greenbelts in the UK?

The UK housing shortage demands development. Some new ways of thinking of greenbelts and green space allocation might offer new solutions.

In an era of climate change, it may seem odd that serious challenges to the otherwise sacrosanct greenbelt areas around 14 major urban areas are being made. The reasons are primarily based in the UK’s housing crisis, but in fact a good argument can be made for taking a different perspective on how green, growing, thriving natural environments play an important role in human habitat.

The Conservative minister of planning, Nick Boles, set off a firestorm in late 2012 when he began speaking publicly about opening up 1,500 square miles of open countryside to housing development, increasing the country’s landmass in use for housing from 9 per cent to 12 per cent. He even suggested that some buildings can be more beautiful than nature itself. The Campaign to Protect Rural England predictably and appropriately responded in kind, saying that brownfield lands (those that have been built upon previously) can accommodate up to 1.5 million new homes, rather than “destroying the countryside” with greenfield building.

So why wouldn’t those involved in land investment and land site assembly not take advantage of these brownfield sites? To begin with, they are not always located where the housing need is greatest. And, brownfield lands often need environmental remediation to protect the health and safety of new residents. Added costs, then, pushes the new homes beyond affordability.

The centre-right group, Policy Exchange, takes the position that the high price of housing is actually about the shortage of land on which to build. They say this perversely has led to developer land banking.

“Developers know land release will always be inadequate,” says Alex Morton, who authored a comprehensive report from Policy Exchange. “They therefore hold on to land because it rises in value and it takes a long time to get hold of, meaning that they don’t build enough new housing. The warped nature of the market is shown by the fact house prices have tripled but new homes being built have actually fallen,” he told the Daily Mail.

Natural England, the statutory advisor on landscape to the Government, is taking a different look at greenbelts in light of the skewed economics that Morton cites. For both social and economic reasons, the UK Government wants to build 3 million homes. Because of climate change considerations, Natural England prioritizes green space but with a willingness to challenge the 1950s definitions of greenbelts. The bureau’s chair, Sir Martin Doughty, has said: “The time has come for a greener green belt. We need a 21st century solution to England’s housing needs, which puts in place a network of green wedges, gaps and corridors, linking the natural environment and people.”

Natural England still proposes that green spaces be at the heart of all new development, just simply that instead of a ring encircling towns that those spaces be interspersed within. There are many examples of the existing greenbelt lands that failed to live up to truly environmental excellence: Baroness Hanham, communities minister from the House of Lords, famously said some greenbelt land use was not “absolutely brilliant,” presumably referring to disused property that is neither attractive nor environmentally beneficial.

Indeed, more evolved approaches to urban planning includes the use of landscape within the built environment to mitigate storm water runoff and contribute to the quality of the air. The “wedges” and “corridors” proposed by Doughty could well serve that purpose, bringing actual green spaces more equitably closer to all sections of cities instead of those fortunate enough to reside near the outer edges of the town.

Developers and investors might do well to propose such designs to local planning authorities as they ask for land use designations.

Of course, investors in land development – capital growth fund properties, for example – should not expect a wholesale opening of greenbelt lands in the near term. The economic pressures call for it, but due to the legacy of these fields and forests, the loosening of the greenbelts (so to speak) will at most be incremental.

This affects investors, of course, who are eager to build. Investors in land development should seek independent financial advice on the risks associated with land development – understanding that attitudes on where development is acceptable may be shifting.