Does the Conservatives’ 2015 Victory Mean More Houses Will Be Built?

The fear of a mansion tax and general uncertainty preceding the May election stalled house sales and building. Prices have risen since May, emphasising demand.

On the heels of the Conservative’s definitive election victory in May 2015, estate agents and large home owners breathed a sigh of relief: there would likely be no mansion tax as proposed by Labour. Sales of homes, especially in London, began to pick up within days. The Guardian reported on June 1 that “boom conditions are back in the UK housing market and prices look set for a new surge before the end of the year,” crediting the election outcome for galvanizing buyers and sellers.

But do sales and price increases mean that more homes – particularly those in the lower and middle price range – will be built? Can the UK get back to building the quantity of houses that will help alleviate the crippling price rise of homes for sale, as well as rising rent? Can the key players involved in development – lenders, developers, property fund partners, builders – join forces to serve the estimated one million households that need a place of their own?

A property fund partner will explain there is not a simple relationship between demand, pricing and supply – the classic relationship that is (usually) fundamental to economics. There’s a little more work (read: bureaucracy) involved, as most seasoned people investing in UK land understand.

When developers and homebuilders want to go about the business of constructing residences, it’s really only after specialists in planning effectively convince local councils that the homes are a net-positive for the community at large. Investors in UK property funds in essence back those specialists, who identify land that is ripe for conversion to development. This approach to alternative investments generally occurs where housing demand is growing – often due to increased employment in the vicinity.

The Home Builders Federation weighed in regarding their hopes for a house building acceleration after the election. The organisation notes several key factors that should influence the Government in its policy formation. They include:

• Building is up in 2015: 40,340 new homes were started in the first quarter of the year, the highest such number of any quarter since 2007. 
• Building was already on the rise in 2014: The new home starts, numbering 137,310 last year, represent a 10 per cent increase over 2013.
• Average house price is  now £193,048: Mortgage lender Halifax said in May that this represents an 8.5 per cent rise over a year ago.
• Completions still short of need: England needs to build 230,000 homes each year, and even if the strong new start building numbers continue apace (which would be about 161,000 homes) it would fall short of the need for this year alone by 70,000 homes. Across the UK, the existing shortage is believed to currently stand at one million homes.

The Royal Institute of Chartered Surveyors (RICS) considers this continued shortage and rising prices a “national emergency” and said as much “in unusually forceful language,” according to a mid-May report (carried by Reuters news agency). The RICS statement was directed at the Government, but participants in alternative investment funds should take note. Housing wasn’t the most prominent issue in the May elections, however the price of housing will almost certainly grow in importance in the near future. A report by the surveyors predicts a price rise of 25 per cent within just the next five years.

Whether an investor choses alternative funds or traditional stocks and bonds, the risks and relative positions of those investments should be made in balance with individual family wealth-building strategies. Speak with an independent financial advisor before taking a significant position.

What is the Private Rental Sector Initiative (PRSI) and what Does it Do to Increase Housing Stock?

To-let housing was formerly the territory of small, individual investors. But larger companies are drawn to it, due in part to the growing rental sector.

The Homes & Communities Agency launched a programme in May 2009 to encourage larger investors to provide funding for a portion of the housing sector, specifically that of large-scale, market-rate rental housing. Called the Private Rental Sector Initiative (PRSI), it has been successful at attracting some insurance companies and pension funds to this form of real asset investing, providing the income flow that those kinds of investors seek.

Historically, to-let homes were the investment preferred by individuals and small companies, to whom the capital growth was the primary objective of the investment. These smaller-scale investors often absorbed operational expenses associated with market-rate rentals, whereas pension funds and other institutional investors need to generate returns that help them meet their liabilities. For them, commercial property was the more attractive draw.

But a 2014 report from Jones Lang LaSalle (JLL) shows that PRSI, otherwise known as the “build-to-let” programme, has successfully drawn £5 billion into the private rented communities sector. JLL’s head of residential investment commented on “a significant wall of money seeking UK residential assets,” and that this indicates that “wall” is in fact building walls, roofs and floors in the high-demand housing markets of the UK, inside and outside of London – including in Edinburgh and Manchester.

Why is this model succeeding now? High demand for rental properties at market rates, not social housing, is an emerging factor. A larger portion of households rent instead of owning today than before the financial crisis of 2008. Part of the PRSI initiative is in how it encourages municipalities to sell publicly owned lands for this investment, and to expedite planning procedures for getting these built.

But there remain challenges that dissuade some institutional investors. One is that the data and metrics typically employed in the commercial property sector are lacking in residential rentals. JLL also suggests rebranding this type of housing as “private rented communities,” to provide emphasis on the tenant-centric approach. The funding models too might be altered to attract long-term institutional investment money to what is still considered more risky development. “It’s innovation and friendlier planning processes”, says JLL, “which brings forward more money.”

Still, larger and individual investors see strong prospects in residential development because of the continued shortage of housing that fails to meet population growth in the UK. With shifting centres of population attracted to new employers the homes that exist are not necessarily where the jobs are. Real asset portfolio investing continues to identify UK land that can be strategically purchased, achieve planning change approvals and be developed for sale to new homeowners.

Investors looking at any part of the residential development sector need to consult with an independent financial advisor who can sort through the various options in light of the investor’s own wealth development plans.

Why Institutional Investors are Taking Another Look at UK Land

Foreign investors – institutional and individual property fund partners – see opportunities in the pent up demand for housing.
Institutional investors from inside and outside the UK are showing signs that the high-demand housing sector in England and Wales offers a significant investment opportunity in UK land and real estate. It seems that if property funds have succeeded in Asia, in other parts of Europe and elsewhere, it should be a no-brainer to invest in a country where a million households are waiting for a place to move.
But it’s a complicated situation. Why is it that institutional investing in residential assets in the UK has lagged until recently? Indeed, institutional investors hold only about 1 per cent of the total residential stock in the country. Compare this to places such as France and Scandinavian countries, where pension funds and insurance companies hold between 10 and 15 per cent of housing.
Some say it has to do with scale, because funds are not typically drawn to smaller developments. But what may change this are government policies relative to housing and an increasing rental market. Larger multi-family construction can yield the asset growth that institutions and larger investment groups are looking for.
Financing in the form of sale-leaseback terms also offers a creative means for institutional investors to participate in housing. For example, M&G Investments purchased 400 properties for rent inside the east London Stratford Halo tower block, which it leases back to the Genesis Housing Association, which will manage it for 35 years as it makes payments to M&G. The investors maintain ownership over a longer-term, including after the end of the leaseback deal. Payments are linked to inflation, part of what makes the deal attractive to the investors.
The institutions may also see how joint venture land investment groups – the smaller pools of individual investors who buy raw land, achieve planning authority changes, build infrastructure and then sell it to homebuilders – are typically achieving healthy asset growth in a short period of time. This may not be the stream of rental income over time that some investors seek, but it can deliver substantial returns in as little as 18 months. A diversified portfolio often has room for this kind of investment.
The fact that Chinese outbound investments are up 80 per cent, year on year, in 2014 suggests there simply is more capital pushing investment – which can be good for the UK. According to numbers reported by real estate company JLL, slowing growth at home in China is pushing money overseas, with global gateway cities such as London among those receiving the most influx of cash. JLL states that while the office sector is a preferred asset class, there is increasing interest in residential development.
This of course comes a few years after investors of all types from the Middle East, Russia and elsewhere discovered that UK residential property – particularly in London, of course – can be a safe haven for their money. With greater familiarity of the UK housing development opportunities, there is increasing private and institutional investment to other parts of England as well.
Institutional investors of course employ analysts and economists to determine where best to put their money. Individual investors should instead work with an independent financial advisor to assess specific investments and to develop an overall portfolio strategy.

Why Foreign Investors Look to Invest in UK Land

The meteoric rise in London residential prices may cool with a new capital gains tax on non-residents. But foreign investment in UK house building could advance.

When UK Chancellor of the Exchequer George Osborne announced in 2014 that a capital gains tax on foreign real estate buyers would be imposed, many who felt it was long overdue cheered him. If enacted in April 2015, this will place the same tax burden on non-UK owners of second homes as is currently placed on British citizens. But will it cool the overheated London real estate market? And might it impact foreign investors in UK land and real estate?

Already, threat of the tax seems to be slowing the purchase of high-value residences in London. Some real estate companies predict that current investors – many from China, India, the Middle Eastern countries, and Russia – might sell their holdings before 2015 to avoid the tax. Others suggest that the stability of UK real estate will prove to be a bigger factor than this tax, or that foreign owners might shift their investments from second homes to real asset investing that has more to do with development and building than owning and occupying.

Offering some credence to this ‘the-tax-doesn’t-matter’ school of thought is how foreign investors are increasingly buying homes outside London. The Daily Mail reported in October 2014 that “investors keen to make a profit from the booming UK property market are purchasing homes across the country” in places that include South Wales, Weston-super-Mare, Manchester, Liverpool and Sheffield. These purchases of middle-class and starter homes are up 20 per cent in 2014 over 2013, and most are bought with cash.

What seems to be driving a spectrum of investments in the UK is simply that opportunities have cooled elsewhere. The real estate firm JLL reported in the second quarter 2014 that “major Chinese residential developers look for opportunities overseas to counteract slower economic and price growth at home,” adding that investments in residential development are up 80 per cent this year, concentrated in the UK, Australia and the United States. The office sector may get the bulk of this, but “there is increasing interest in residential development,” says JLL in its online publication The Investor. Other indicators that individuals and institutions, some working through real asset funds, are drawn to the UK include:

• Larger multi-family developments are on the rise in the UK, given the strength of the rental market. Larger investors, institutions in particular, are more interested in scaled-up properties.

• Creative financing such as sale-leaseback deals proves to be attractive to some. These might be available through housing associations.

• Basic demand for housing will remain high for many years to come – all but ensuring the market for sale or rental of properties will be there at the end of the development cycle for new-build developments. Typically, this means the 18 to 60 months it may take for alternative investment funds to acquire raw land, achieve planning authorisations, to develop infrastructure, to construction and to the sale or rental of homes (as is the practice in real asset portfolio investing).

It is impossible to predict the outcome of the proposed new capital gains tax on foreign investors, but the demand for housing is almost a future certainty given the extreme shortage in the UK. But any investor considering real estate for their portfolio needs to discuss it in all its nuances with an independent financial advisor.

The Role of Land Fund Managers in UK Land Investment

To increase the value of strategic land, investors tap the skills of professional land development managers. It clearly is not a job for amateurs.


Rare is the investment that succeeds out of dumb luck. Whether one invests in market-traded securities, mineral exploration, rarities, agricultural commodities, land or business start-ups, it’s the people who lead and manage the asset who carry the most weight in achieving good returns.

UK Land that is purchased for development is no exception. It is an asset that requires expert management through several critical stages, typically taking acreage from agricultural use or disuse to build residential communities. The value of that land could increase by several multiples when managed effectively.

But what is the role of land fund managers? What do they do to grow the asset as much as possible in the least amount of time as possible? Here is a short list of their value-adding strategies:

1. Look for opportunistic transactions – The nature of land investing involves many variables. Early in the process when homebuilding is the goal it is to simply identify where there is a critical need for new houses, usually to accommodate workers for growing firms in the area. Then it becomes a matter of finding landowners who may be in a position to sell. Both require good research as well as a network of contacts to keep them informed. 
2. Invest where value can be added – With strategic land, a change of use can increase value exponentially. But that depends on the cost of the property purchase as well as the costs associated with building infrastructure and buildings. Certain geological and topographical features can make that difficult; therefore the fund manager should be able to assess those (with professional guidance) in advance.
3. Access to local knowledge – Change of use strategies have to take into account the goals and objectives of the local planning authorities. Local politics are certainly a factor, as is the local plan for increasing the housing stock (about half of all towns in England and Wales have developed a Government-mandate plan this far). The business community too can play a role at encouraging local development. Good land fund managers have a sense of where all parties stand. 
4. Approach with rigorous financial analysis – At the end of the day, the numbers have to add up. Time factors into this as well: because development can require two to five years of time, how a fund matures is dependent in part on externalities. The manager’s analytical framework needs to synthesize all variables over the time that transpires from the initial investment to the sale of property.

Even when the land manager – quite typically working within a capital growth management group – has an excellent portfolio of successful projects in his or her experience, it makes sense for the investor to do third-party research. An independent financial advisor can provide that perspective.

What Types of UK Land Can Be Used for Residential Housing Development?

Unquestionably, the country needs more houses – and there are thousands of hectares available for building. But the characteristics of each need to be examined carefully.
Continued attention from the media and from Government about the shortage of housing leaves many scratching their heads. Why aren’t there more houses? And with so much foreign money coming into the UK to buy luxury homes and businesses, why isn’t anyone investing in middle class housing?
In fact, those investments are rising. Government schemes to help working people to take their first step onto the property ladder have enabled more people to get more mortgage loans since 2013. Homebuilders and real asset portfolio investors have consequently increased activity.
But there is a lag between demand and supply, due in no small part to the complex and diverse nature of residential real estate development. There are all types of land found throughout England and Wales that may appear to be good for building, but a closer look reveals why some sites would work and others would not. Consider four types of UK investment land and how they vary:

1. Urban-Suburban/Extant building demolition/preservation – Land that is closer to city centres will always be more valuable. But of course this means the cost to purchase will be higher, quite likely diminishing the profits to be realised from a resale (even after site assembly improvements). Further complicating matters might be the existence of structures that do not fit the development plan, such as multi-storey buildings that would be expensive to demolish or buildings of historical value and thus given heritage protection that precludes feasible repurposing.

  2. Agricultural/Existing infrastructure or lack thereof – Farmland is by far the least expensive property on which to build (after planning authority change of use is approved). But it quite likely will lack for infrastructure of all kinds – roads, utilities, schools and hospitals. The real asset funds that underwrite the development might need to allocate a greater budget to this than an alternative property.

 3. Agricultural/Relative proximity to employment – The whole of the UK is driving toward increasing the housing stock to accommodate as many as one million households that currently are sharing homes with extended families and friends. And while the central Government has tasked the local councils to write up plans for how they can add to their housing inventory, it makes no sense to build where people will be far removed from jobs. It would be better for site selection to be based on where employment is growing.

  4. Brownfield/Cost of remediation – It is generally agreed that an ideal scenario for building would be in cities where land stands vacant due to abandoned industrial and commercial enterprise. The advantages often include access to urban amenities (public transportation, shopping, schools, etc.), established utilities (especially water, electric and wastewater) and perhaps development tax incentives. Not all these factors are always there, however. But even if they were, there may still be site contamination remediation and building demolition costs (exception: when an industrial-purpose building can be repurposed to residences). Remediation of toxic contamination in particular can be significantly expensive in materials, labour and time.

As should be clear, all sites are different and as such they need to be evaluated individually by astute specialists such as experienced property fund managers. For the individual investor, consultation with an independent financial advisor can yield important insight into the appropriateness of such an investment in that individual’s portfolio.

What is the Current State of House Building Planning Permissions in the UK?

The statistics on change of use designations present a mixed picture. The process is beginning to show signs of speeding up, which helps.

In the national drive to increase the stock of housing in the UK, among the leading indicators of new-build activity might be planning permissions granted by local planning authorities (LPAs) to convert underused UK land to homes. This is of course of interest to the approximately 1 million households that are waiting for affordable and well-located homes - near their place of work – and to property fund managers as well. They are the investors who most often make a change of use request.

District planning authorities have, as of the end of June 2014, granted changes to 170 applicants out of 200 decisions made (with 42 applications still pending, as of November 1 2014), according to statistics supplied by the Department for Communities and Local Government (DCLG). This relatively high proportion of approvals, 88 per cent, might indicate a relaxed approach to authorities’ review and scrutiny of such applications. But this proportion of applications-to-approvals has remained relatively constant since before the financial crisis of 2008. Such approvals range between 81 per cent (Q1 2008) to 89 per cent (Q2 2013).

The numbers of applications – indicating effort on the part of real estate developers and their financiers – have varied a bit more. The highest number of applications made per year since 2004 was 689, in 2004/2005, dropping notably by 2009/2010 to 466 applications and to 454 applications by 2012/2013. In the 2013/2014 fiscal year, that number is up only slightly to 472.

These middling numbers since 2008 suggest several things. One is that the economic recovery has been slow, and that perhaps all efforts toward localism in the shift of authority to LPAs (versus regional and national planning) have not changed the landscape all that much. The Government schemes to make home buying more affordable have had a noticeable effect on the number of home sales, but this may be expressed more frequently in the purchase of existing homes that require no planning authority involvement.

The statistics get a bit more interesting and perhaps meaningful when broken down by the sheer numbers of dwellings and change of use. Some highlights from DCLG reports include:

• Most dwellings – Planning authorities have ruled on hundreds of homes in several standout locations include Cornwall (1,615 dwellings), Wandsworth (1,087 dwellings), Kensington and Chelsea (897 dwellings), and Cheshire East (503 dwellings).

• Most change of use – All told, the LPAs granted 23,884 use designation changes in 2013/2014. But this number includes changes to residential as well as to retail, offices, light industry, general industry, storage, distribution and a handful of Traveller caravan pitches. The largest numbers of change of use applications granted were Leeds (379 applications), Birmingham (275 applications), Liverpool (239 applications), and Leicester (207 applications). What should be noted is that the City of London granted only 67 such changes of use, which perhaps illustrates how the heavily built environments simply have less land to convert to an alternative use.

• Time required to grant a change – Much has been made of speeding up the application process, which may have been accomplished in the 2013/2014 year. Of 472 applications received in this time frame, 71 major applications were decided upon in 13 weeks or less, up a bit (from 57 and 58 in the preceding two years). Developers and their investors, many working through such instruments as real asset portfolio investing, prefer an expedited process such that they can get a faster return on their investment.

While none of this indicates an incontrovertibly robust move forward to building – sorely needed by Britain – it does suggest a trending in the right direction. More people are able to buy more homes than in the preceding five years, to which homebuilders are beginning to respond. Planning permission changes generally indicate where populations are shifting, often drawn by new employment from growing companies. Investors recognise that homes absolutely need to be built, so getting past the bottleneck often inherent in the planning approval process is one more piece leading to increasing the housing stock.

The possibility of a land use change is clearly part of the due diligence of any investor in real assets such as land and development. Individual investors need to consider this information under the guidance of an independent financial advisor.

Types of Joint Venture Land Investment Opportunities Available to UK Investors

How a joint venture partnership is structured plays a big role in liability and engagement questions. Those partnerships work best when the relationships are well defined.

Joint venture partnerships (JVPs) of several types are a popular and effective means by which individuals combine resources of expertise, money and strategic relationships to bring about business success. Look no further than the realms of UK land and real estate to understand where such partnerships can be very productive.

Those partnerships typically join professionals in the various aspects of development (acquisition of land, change of use designation, infrastructure development, construction and sale or rental of property) with investors who understand real estate in broad terms but whose expertise may lay elsewhere. Participants in such joint ventures know that their money can grow quickly in such sectors as residential development, given the pressing need for new housing in the UK.

But UK joint ventures can be structured differently. For example, a JVP company that is limited by shares enables participants to have limited risk as they would as shareholders in a company. A contractual venture is more flexible as it is not technically an entity that needs incorporation, but it also is vulnerable because it has a poorly defined structure and identity. A limited liability partnership provides participants with a legal entity, but partners are still taxed directly on their percentage of profits and losses. A fourth category, general (limited) partnership, is popular as an investment vehicle for passive investors because limited partners cannot be involved in the management of the venture.

For investors hoping to cash in on the rush for land and the exceptionally underserved housing market, each of these structures might work. But the general or limited partnership might provide the best advantages when such individuals do not work professionally in real estate or development.

But regardless of the type of JVP an investor chooses, there are at least four criteria they might apply to the partnership by which to evaluate it:

Mutually understood objectives – There are so many directions a real estate entity can go with a project: to create short-term asset growth, to hold for rental income, or even to remain flexible to determining the objective as a construction project nears completion. Whichever it may be, participants in a JVP should share overarching objectives to help guide decisions made along the way.

Clear-cut strategy – Members of the partnership should also agree on how to achieve those objectives with a coherent strategy. If external circumstances change and disrupt plans, a good strategy is to adapt and apply to leverage as possible to achieve a strong outcome. Throughout, the real estate professionals leading the JVP should communicate as needed to the other partners, financial and otherwise.

Adequate documentation – Regardless of the type of structure, a JVP is nothing without the paper. But it is not only about the documents that establish the partnership; partners should be informed of due diligence provided with land acquisitions, of applications for land use changes, and other moments of regulation and transaction that affect the cost and revenue structure.

Commitment by all parties – Just as important, a large degree of shared commitment can have a great impact on all paid staff, managers and investors in a project. Unified, the JV partners can accomplish much more than if not.

Real asset funds investments of any kind should be closely scrutinised relative to other investments. For any individual or family, counsel from an independent financial advisor is highly recommended.

Does a JV Investor Need An Attorney at the Outset of An Investment?

Should a land investor working in a joint venture partnership engage a solicitor?

The popularity of joint ventures for land has soared with the Limited Liability Partnerships Act 2000. But other types of partnerships might be considered.

Joint Ventures (JVs) are a common means for several individuals to collectively invest and grow an asset. As should be obvious, the risks and rewards of that asset are spread among the partners – enabling smaller investors to participate in capital growth just as much as the super-wealthy who are more able to do it on their own.

But the risk part of JVs is no light matter. Poorly managed joint venture partnerships are the stuff of legal and financial legend – even large entities such as the alliance between Honda and Rover (1981-1994) can end badly. In that case, the assets brought to the partnership included car design, engineering, distribution and marketing capacities, which proved to be a poor fit over time.

Land investment joint ventures are a bit different in that they generally require capital to invest in the land itself and the expertise to turn the property into a more productive asset. For example, in the UK a pressing need for housing makes it likely that land currently in use for agriculture on the periphery of population centres will be converted to residential and commercial uses. Land investors working in joint ventures with UK land fund mangers can do well to purchase tracts that can optimally serve these purposes. But to do it right, the investors must also know how to select land that is likely to achieve local planning authority goals for growth, and they must build the infrastructure on the land that will attract developers and builders.

Still, what needs to be central to the investor is how to limit his or her exposure in this type of investment. Savvy decision-making is the province of the investor and his or her advisors. But the engagement of legal counsel can play a role as well, by various degrees according to the type of partnership that is established.

Three types of partnerships – and questions the JV investor should

A prominent London-based law firm with a large, property joint venture practice advises its clients to look at the three most common types of partnership vehicles to assess the relative risks and appropriateness for them and their proposed investment:

General partnerships – These require no formal declarations, a relationship that is tax transparent (each participant is tax-liable for income and capital gains, not the partnership). The largest risks lie in how each member of the partnership is jointly and severally liable for debts; they are not able to ringfence losses and liabilities. The Partnership Act 1890 governs general partnerships.

Limited partnerships – These need to be registered at Companies House, and include two types of partners: limited and general. Limited partners are liable only for their investment, and they are forbidden from involvement in the management of the business under the partnership. The general partner is exposed to all liabilities, and is tasked with full management responsibilities of the business itself. The Limited Partnership Act 1907 governs this arrangement.

Limited Liability Partnerships (LLPs) – Considered a hybrid between companies and partnerships, investors enjoy limited liability (as the name implies) but also offers them involvement in the management of the business. Members are taxed only on their share of profits from the investment, which has made the investment very popular since introduced by the Limited Liability Partnerships Act 2000.

According to the solicitors who work in this area, investors need to weight the pros and cons of these three joint venture structures, as well as private limited companies and unit trusts. The process of determining which is right for the investors and the investments might take into consideration several factors, as follows:

• Development or investment? The nature of the land investment – and its size – can determine whether a simple or complex structure makes the most sense. 

•  Investor relationships. A collection of several passive investors is different from long-term partners who are comfortable with joint and several liability. In other words, the degree of familiarity with your partners can make a big difference.  

• Tax transparencies. Not only should investors’ current tax scenario play into such a decision, but ask whether the structure of the investment or your own situation will change at some future point that might affect tax liabilities as well. 

•  The liabilities in land – If a property needs remediation, for example, the partnership will have additional expenses and potential legal exposure. Good advance research should uncover this before entering a contract to purchase the property, of course, but as with any business venture there can be liabilities against which investors must protect themselves.  

• Exit routes – Should an investor need to cash out of the investment, would he or she be able to do so? Understand the liquidity and flexibility of the structure to know whether or not this is an option or risk.

As important as legal counsel may be in some investments for some investors, of equal importance is the role of an independent financial advisor. All investments should be undertaken with regard to one’s portfolio, risk tolerance and expected returns, which often benefit from the review and analysis of a professional third party.

Is Another UK Land and Housing Value Bubble Building to 2008 Levels?

It seems too early say UK real estate values are approaching unsustainable levels, given the past half-decade of value deflation. But some see signs it is.

The story of land and real estate prices in the UK is Dickensian: the best of times in some places (central London, for example) with lingering reminders of the worst of times in the aftermath of the burst housing bubble of 2008 (Leeds, Bradford and Liverpool). In the latter, struggling local economies mean vacant properties and stalled housing sites.

The housing shortage may exist throughout the UK, but the economics of those different locations vary, according to a report from the Centre for Cities, Cities Outlook 2013 (the report is supported by the Local Government Association). The report largely argues for different and local approaches to the housing crisis, which is very real given the natural and immigration-driven population increase that has outpaced new house construction by a factor of two for the better part of 30 years.

The housing crash that was part of the larger worldwide financial crisis in 2008 certainly brought down real estate values everywhere. But true to the nature of housing values (as heavily documented in Cities Outlook 2013), the rebound has been spotty. London and the South East have recovered most robustly in 2013, says real estate advisor Savills. After disappointing reports in 2012 and the four years prior, house properties averaged across England and Wales rose 0.4% in May 2013, the fastest rise in six years – hearkening back to when the housing bubble was going full steam in 2007.

So does that mean a new housing bubble is forming? While that idea might strike some as ridiculous, here are a few perspectives on that possibility:

“Help to Buy” risks another bubble – According to Sir Mervyn King, the Bank of England governor, this three-year initiative which will have £12 billion of public backing, is too similar to the American government guaranteed mortgage market. By providing taxpayer underwriting of as much as 15% of mortgages on homes valued £600,000 or less, the programme might inadvertently send prices skyward.

London and the South East most at risk of a bubble – CNBC-TV, the financial news network, is also using the “B word” to describe what is happening in these specific areas, where prices rose faster than the national average of 0.4% in May (0.9% in London and 0.5% throughout the prosperous South East). “The gap between supply and demand in London is the largest it has been since spring 2009, said the Hometrack property analytics firm’s director of research, Richard Donnell. “In the last six months, demand has grown by 15% [in London] while supply has declined by 0.6%.” He says there is a reluctance to put homes on the market in these particular areas, given the uncertainties over jobs and housing availability elsewhere.

Basel III banking regulations and debt funding may restrict development – Real estate analysts at Savills forecast that serviced land (property with infrastructure, transport access and built structures) will achieve the 2007 peak values by about 2016. But because debt funding is limited, house builders will likely focus on smaller sites and build in lower volumes. This will tend to put a crimp on overall development such that the supply will remain tight, inadequate for the still-growing UK population.

The Savills analysis that homebuilders will lack necessary financing does not take into account the newer two-step model for developing raw land into built housing. Homebuilders now have an option: take on the full risk and extended time frame of development by buying raw land from farmers and other owners, or wait for an investor team to do about half of that work for them. In the latter scenario, investors in UK land, led by land development specialists, identify land with optimal development potential. Those specialists will have a well-informed approach to buying, being familiar with local zoning authorities who can make a designation change from, say, agriculture to residential and commercial uses. Once a purchase is made and that use designation secured, the investors often build key infrastructure features, such as streets and public utilities. Only then will a homebuilder step in to purchase lots ready to build. Profits may be split between both entities, investors and homebuilders, but so too is the risk cut by half.

Individuals who wish to participate in the investment phase are urged to do so with the help of a personal financial advisor.  The personal financial advisor can assess the value of alternative investment in land within a holistic view of one’s total wealth portfolio. They also should identify a strong land investment organisation that can illustrate success with earlier projects.

Can Investors in Property Funds Participate at Varying Levels?

Discover the different levels of participation in property fund investments.

The range across which investors can grow assets includes REITs, joint land investments and sole ownership of vast tracts. Each offers advantages and disadvantages.

Building wealth through buying, selling and holding land is a time-honoured tradition across the world and throughout history, in the U.K. as anywhere else. It is not fool proof, of course – everyone and anyone could get rich if it were – but at least the means by which one can invest in land are now more varied than ever before. It is possible to own shares in a real estate investment trust (REIT) for a few hundred pounds, just as the land barons of today own thousands of hectares in Britain and elsewhere.

REITs’ rules in the U.K. have been in effect since 2007, and are lauded for providing investors a means to access property value increases without having to buy the property itself.

However, REITs are traded publicly and tend to rise and fall with general market trends. The owner of REIT shares has no involvement in the actual properties, therefore value growth is entirely a function of the markets and the broader economy. Performance by REITs shares in the economic downturn since 2008 has been unkind to shareholders.

At the opposite end of the UK land investment spectrum, confident and experienced land developers look for raw, undeveloped land for asset growth. The savviest investor learns where market pressures for developed properties (e.g. housing) drive a need for zoning changes that will convert unused (sometimes agricultural) property to residential tracts. That investor will know how to buy at a price that will ultimately return a profit. The Duke of Westminster, one of the richest land investors in the UK, exemplifies this model.

In between REIT shareholders and His Grace are land development investors who work with property funds that hire professional land investment advisors. The price of entry into either type of fund ranges between £10,000 and £25,000 (US$15,000-$40,000) in most scenarios. Such an investment provides the investor greater opportunities than they might find in an REIT – for example, the prospectus will detail the specific features and risks associated with a particular land purchase. The investor will enter with some knowledge as to how long the investment will be held – typically between 18 months and five years – and what the benchmarks are for light development (infrastructure, less so buildings) before selling to housing or commercial structure developers.

Alternatives to land investing and property funds include stocks, bonds, commodities, hedge funds, precious metals (gold, silver), forestry products, energy (fossil fuels and renewables), and rarities such as art and antiques. For more information on choosing the right investments to match your individual asset growth needs, seek counsel from a qualified financial advisor.

Strategic Land Investment Versus Stock and Bond Markets – A Comparison

How Do Traditional Investments – Stocks and Bonds – Compare to Strategic Land Investing?

Investors are looking outside of stocks, bonds and REITs for better returns. But the alternatives, real assets such as strategic land, defy apples-to-apples comparisons.

The performance of stocks, bonds and REITs (real estate investment trusts) is based partly in the companies they represent and partly in overall market trends. This has proven to be dissatisfying to many investors in recent years because, net-net, those types of investments have shown little overall growth amidst a sea of financial volatility.

An alternative, strategic land investing, is attracting disenchanted investors because, simply, such investments are able to outperform the securities traded on the London Stock Exchange, the New York Stock Exchange, the SEHK and other trading organisations.

What makes for this difference? Why would an investment in land be advantageous over something as apparently similar as a REIT? And doesn’t the general health of the economy affect demand for land in a similar fashion to demand for stocks. These are important and natural questions, best understood by considering the following premises:

•    Strategic land versus REITs – Most real estate investment trusts hold commercial property such as office buildings, retail centres and warehouses. Strategic land, however, is primarily made up of acreage that is unbuilt but ripe for municipal repurpose designations. The strategic land fund, a conglomeration of investors working in partnership with land acquisition and development professionals, will purchase the land and improve its value by various means such as rezoning and infrastructure development (“land site assembly”), then sell the property when its value is sufficiently increased (often, within two to five years).

•    Strategic land versus stocks and bonds – Investors in market-traded securities follow trends, which often supersede the intrinsic value and worth of individual companies. REITs, also traded on the exchanges, are subject to the same generalisations. But strategic land values rise and fall on the acumen of investment property specialists – in how and when they purchase property, their success at rezoning, skill at cost-effective infrastructure construction and identifying the optimal time to sell.

•    Strategic land relative to the general economy – The general economy may be in the doldrums, yet specific tracts of land in select locations might concurrently be highly desirable due to area-specific factors.

These are each reasons why strategic UK land investment specialists hold great value with their investors. But before you embark on a strategic land investment, speak with your personal financial advisor who understands your own investment goals, timeframes and tax considerations.