Investing in Rarities Such as Antiques, Art and Wine Follow Different Dynamics Over Land Development

Real assets including raw land, art, antiques, fine wine and antique cars are attractive to emerging wealth. But the factors affecting value growth of each are vastly different.
In late 2011, even while dealing with the after-effects of the 2008 financial crisis, the interior minister of Iceland rejected an application by a Chinese billionaire to purchase 300 square kilometres of land. The property was landlocked, and the investor claimed he wanted to build a golf course, but its close proximity to deep-water ports worried the Icelandic government. The minister said their weak currency crisis made them vulnerable to a “fire sale” acquisition, which they did not want to do.

What was going on here is actually related to a lot more than a rocky outcrop in the North Atlantic. Chinese investors are using their new money to buy up property and strategic land everywhere – in London, in Africa, Singapore, New York and around the world. But they are also buying art, antiques, rare coins and fine musical instruments, among other real assets. Each category is increasingly seen as an advantageous complement or alternative to market-traded securities, given the recent volatility and poor performance of stocks, bonds and new-to-the-UK real estate investment trusts (REITs).

How those assets have performed for investors is a mixed lot, although all did well. FT.com (Financial Times online) reported in February 2013 that individuals of high net worth have driven the market for all kinds of rarities and collectibles, including gold. Citing the Knight Frank Passion Index, a performance measure of fine art, classic cars, watches, stamps, coins and fine wine in the 2002-2012 time period, price growth for these assets is reflected as follows:

Asset                                                  10-year price appreciation (%)

Gold                                                                  434

Classic cars                                                       395

Rare coins                                                        248

Residential property* Hong Kong                     221

Stamps                                                            216

Residential property* Sao Paulo                      211

Fine art                                                          199

Fine wine                                                       166

Jewellery                                                       140

Residential property* Paris                             117

Residential property* London                         103

Watches                                                          76

Residential property* New York                     72

*All residential properties are upper-end

The FT.com article reports that 64 per cent of Chinese millionaires are collectors, which tends to boost prices of real assets. In classic supply-demand dynamics, the addition of thousands of investors from the BRIC sector (Brazil, Russia, India and China, where high-net worth households are growing fastest) drives demand and therefore higher prices for these finite-quantity goods.

FT.com also notes that with property investments, the largest cities have the natural upper hand. They are great places to live and regardless of where you grow up, you know where London is – as well as New York, Hong Kong, Paris and Sao Paulo, etc. But the children and grandchildren of investors in these well-known cities might be more adventurous, taking their money to invest outside of London, for example, “expanding as far as Richmond, Putney and even to the Docklands,” says the writer.

What should be noted, however, about comparing these different types of real assets is that the value of most is determined by factors outside the control of the investor. When a wave of interest in gold watches somehow washes over BRIC millionaires, for example, the price appreciation might double and triple in a year or two. Reportedly, Chinese wine collectors had a love for Chateau Lafite – until they didn’t. This led to a 19 per cent drop in price between 2011 and 2012.

Raw land investments, as with most real estate, defy strict apples-to-apples comparisons. Where land was developed before, during and after the economic crisis, are large variables. But agricultural land in England trebled in the decade preceding 2012, with the average currently more than £6,000 per acre.

Built real estate offers some opportunity to increase its value when an owner improves it or perhaps conjoins adjacent condominiums or buildings – although, that can decrease the value/square foot in many instances. Un-built property, raw land, can increase in value when local planning authorities can be convinced that development (typically, providing badly needed housing) will be a net benefit to the existing community. Fine wine, classic cars and rare stamps in comparison cannot be rezoned.

Potential investors in real assets need to be sure their investments are complementary and balanced within their portfolios. All investments should be made with input from an independent personal financial advisor who can access expertise on traditional and non-traditional assets for their investment potential.

How UK Land is Rezoned

More than ever, rezoning is a key consideration in UK land investing.

New zoning laws in the UK have ushered in a different set of land use planning rules. Now land investors work with local authorities to address community concerns.
The Localism Act 2011 brought a significant change to how land is rezoned in the U.K. Essentially, town and country planning throughout the U.K. is now under the control of 421 separate Local Planning Authorities (LPAs), a stark change from the regional authorities that formerly held this responsibility under the Town and Country Planning Act 1990.

Localizing authority has an impact on UK land investment dynamics. LPAs are organized at the borough, district council or unitary authority, where decisions about land use and building are considered along with other community interests and with input from local citizens. Given the general growth of the population in England and Wales (about seven percent over the decade preceding 2011), a need for housing makes this a pressing issue. Rezoning is sometimes necessary to enable developers and investors to build where housing needs are most critical.

The criteria that LPAs follow include:

•    Follow a general scheme – Before any requests for zoning changes are made, the local authorities must develop a general plan for land use, growth and use designation changes.

•    Submit information about plan revisions (rezoning) to public scrutiny – Regardless of whether an appeal to change a particular tract’s zoning comes from private parties or agencies in the public sector, those changes must be published for general public review and criticism.

•    Assess environmental impacts – In particular, the requirements of the Environmental Impact Assessment and Habitats Directives must be met, particularly with regard to the suitability of the land for infrastructure projects, such as how new roads, sewers and utilities would affect watershed, protected species and so forth.

•    Consider the social and economic impact of zoning changes – In the bill, the Community Right to Challenge (Chapter 3) provides that the LPA is required to consider social and economic impacts of any zoning alterations.

These considerations are important to investors interested in how the value of land can change with rezoning. Professional land investment companies understand the zoning process and will study the local economic conditions and LPA receptivity to land use designation changes. To the individual investor, it is important to consult a personal financial advisor, who can assist study where investments in real assets such as land factor into overall wealth management.

To What Degree Is UK Housing Affected by Land Use Expansion?

The UK’s greenbelt policies hugely affect land planning. But the experiences of other countries show flexibility can favourably impact home affordability.

An important tenet of land planning in the UK for more than 60 years has been preservation of “greenbelt” areas, institutionalized in the Town and Country Planning Act 1947. The intent and result is to control urban sprawl, maintaining areas dedicated to forestry, agriculture and outdoor recreation.

While deemed largely successful in its goals, the greenbelt movement and dictates for land planning have come under question as the population continues its increase in England and Wales. The current and future housing shortages – the number of people living in the UK is expected to rise by 27 per cent from 2008 through 2033 – are debatably related to these restrictions.

A purist approach to greenbelt preservation would be to continue developing only within the urban confines, building up and not out. But this is happening only to a certain degree, and the sharp increase in home prices is a critical, unintended result. Home purchases have been so inaccessible that the proportion of people in the UK who now rent has risen by 17 per cent since the 1990s.

This is a large part of why the National Planning Policy Framework, established in March 2012, has taken a more nuanced approach to greenbelts. The NPPF still checks unrestricted sprawl from occurring, while it seeks to retain agricultural, forested and recreational lands in their optimal state. But it concurrently allows local authorities (empowered by the Localism Act 2011) to go through a process that can weigh special circumstances, for example re-purposing for development greenbelt acreage that fails to serve its original intent.

There will always be some degree of public resistance to all development, much of it well placed. But because home construction and land availability are tied to the economy, often a factor when employers seek to establish new workplaces, the business community, land investors and builders are naturally interested in expanding development beyond urban centres.

But this development push isn’t solely from the business sector. Advocates for social justice and affordable housing at the Joseph Rowntree Foundation (JRF) assembled a Housing Market Taskforce to study the matter of land supply and how it affects housing market price volatility and affordability. The task force sponsored a report, “International Review of Land Supply and Planning Systems” (Monk, Whitehead, Tang and Burgess, University of Cambridge, March 2013), which looked at data in 24 countries, at literature from 11 countries, and consultations with stakeholders and country experts in England.

The report concluded that residential land supply is indeed a contributing factor to housing affordability problems in the UK. Some key findings in this report are as follows:

• The idea of controlling urban sprawl to protect agricultural land is nearly universal. All countries prefer to accomplish this, but England lacks a “strategic level of decision-making between national and local.”

• Effective planning policies in other countries tend to share core elements: “Incentives and mechanisms to bring forward land for development; responsive growth management policies that recognize both the benefits and costs of growth; and a secure source of funding to provide infrastructure” were deemed as pluses in sensible development.

• There is “no new magic bullet,” but in fact many of the effective mechanisms identified in other countries exist in some form in the UK already.

From this, JRF states that the “key to long-term reform to land supply in order to reduce volatility in the housing market is for planning authorities and their partners to become more proactive in the land market, especially in the case of publicly owned land.”

Land investors are already becoming involved in joint venture partnerships or investing in UK property funds to develop land where the market need calls for it and where local planning authorities enable it. Those who provide this financing clearly do so from a profit-motive perspective. But as the community-wide benefits of development become more clear – even to the point of achieving more affordable housing within a social justice framework – the profits become effectively shared across communities.

Individuals who look to join in land investment schemes should do so under advisement of a qualified and independent financial professional.

Green Belt Versus Brownfield Land Development

Does land development in the UK boil down to green belt versus brownfields?

The national housing crisis in the UK is blamed by many on restrictions to green belt development. The solutions, however, may be worked out through localism.

There is much debate in the United Kingdom over different solutions for the housing shortage. One part of the argument has to do with the dearth of financing available to both builder-developers and potential homebuyers (although the government is dealing with this latter point through schemes such as Help-To-Buy). Another part has to do with government directives on where to build: in green belt areas or on brownfield land.

The UK green belt policies reach back to the 1930s, when political leaders adopted a policy to prevent suburban sprawl. These policies effectively kept a ring of forests, agriculture and undeveloped land around many of the towns of England, Wales, Scotland and Northern Ireland.

But the total population of the country has changed dramatically in the eight decades since, as have a host of economic factors. Not only has industry and population expansion created evermore-dense towns, but a housing crisis has developed due to an unfortunate confluence of factors in the past decade: immigration, a higher birth rate, seniors living longer, and the recession.

Total population growth in England and Wales has been at about 7 percent the past decade, adding more than 3.7 million people since the turn of the century. But the financial crisis of 2008 and the resultant recession have been consequential as well. Banks are reluctant to loan money to developers, just as they have not been lending to homebuyers. New home building is at the lowest rate, as a portion of population, in 100 years. Meanwhile, multiple generations of families are sharing housing while they wait for conditions to change – specifically, for more homes to be built.

So the question in broad brush drills down to this: when the economy recovers, where will home building happen?

Directives to build brown – and the problems that presents

PDLs, (Previously Developed Land) in the towns, offer an alternative to green belt building. Also called “brownfield” sites, this is where land is vacant or occupied by vacant and decrepit buildings, or perhaps zoned for commercial and industrial purposes but sitting empty – seemingly providing opportunities to build. This is land that is contained within the green belt rings, closer to town centres and on the grid of existing utilities. These conditions make it easy to develop property, and would provide a vital, urban lifestyle to residents – and consistency with the green belt ideals of the 20th century, right?

Around the year 2000 a government commission led by acclaimed architect, Lord Richard Rogers strongly encouraged building new housing on brownfield lands, in part as a strategy to avoid green belt development. The commission acknowledged that 3.8 million new homes would be needed by 2012.

Builder & Engineer magazine weighed in on the topic more recently and they aren’t in complete agreement with that approach. The publication cites how building over the past decade has been at 160,000 to 200,000 new homes per year (and less in 2012, with a reported 21,540 new starts in the second quarter, which would annualise at about 86,000 units). Why so slow? They cite the observations of Richard Simmons, who is managing director of the Construction Centre and also a property developer.

“I think it is because brownfield is pretty slow to come to market by the time you’ve done all the testing,” says Simmons. “You have to spend a lot of money first assessing the site. Firstly you have the desktop study where they look for what contaminants are in the ground and their assessment reveals whether remediation is needed or not, which can be expensive. As a developer you are always thinking that there might be the cost of evaluating a site that might go wrong, so it’s not as easy as building on a farmer’s field.”

Not all brownfield land is contaminated, counters the British Property Foundation. A spokesman for the organisation explained that the broader definition of brownfield is PDL, which simply means it was built upon in the past. “Green building isn’t necessarily plush green land,” the spokesperson told Builder & Engineer. “It can often be nasty and derelict.”

The green belt solution?

The Daily Telegraph published an opinion piece in August 2012 largely in support of green belt preservation. It cites Housing Minister Grant Shapps’ stated support for development outside of green belt lands. Still, the newspaper acknowledges the importance of housing and the mixed picture created by the Localism Act of 2011:

“Protecting the green belt is not easy: it is in the nature of economically vibrant towns to sprawl into the countryside, and only the green belt stands in the way. Moreover, the Government’s support for the green belt can clash with its commitment to localism, as many local authorities want to build on it or causally redraw its boundaries.”

The media watchdog group FullFact.org took its own look at the scenario in September 2012 and finds a more mixed view. The group critically examined claims by the Campaign to Protect Rural England, CPRE, which are that brownfield land in England was sufficient for the construction of 1.5 million new residences.

But a closer look at the available land found something much less, says FullFact.org. Overall, there are 61,920 hectares of brownfield land in the UK, as compared to 1.6 million hectares of green belt property. A little more than half – 54 percent – of the brownfield sites are vacant or hold derelict buildings. Only the remaining 46 percent, approximately 30,000 hectares, of brownfields are truly available for repurposing and building without displacing a current occupant. This does not distinguish the portion of those brownfields that are truly appropriate and feasible for housing: many are contaminated with industrial waste, while others are situated in industrial corridors, where it would be difficult to attract residents to live.

For all of us, including those involved in UK land investment as well as those looking at investing in real assets, it may ultimately prove to be an argument that offers no national solution, as housing needs and philosophies about green belt vs. brownfield land may differ from town to town. Which in the end may be the ultimate benefit of the Localism Act.

Historical Examples of Wealth Accumulation through Investment in Land

History holds many examples of significant wealth accumulation through land.

Most of the largest landowners today are royalty, and yet some of history’s wealthiest commoners came to their money through real property.

Throughout history, ownership of land has been the single most prominent indication and source of wealth. Until a few hundred years ago land was the sole source of food, of course, which either the landholder farmed himself or, as was the case in feudal society, he essentially rented it out to others – serfs – for them to maintain.

The industrial revolution shifted the balance of wealth accumulation, somewhat, to owners of capital (factories and machinery as well as property), yet land remains one of the most important means of wealth accumulation and preservation. Some of the richest people alive today derive or preserve their wealth from ownership and transactions of land.

The list of the top 20 richest people in the U.K. includes four whose primary wealth is in land. From a list published in 2012 in the Sunday Times of London, land-rich people include the Duke of Westminster (Grosvenor property group), brothers Simon and David Reuben (who own the Millbank Tower in London), Joseph Lau (whose £33 million home is in Eaton Square in London) and Earl Cadogan and family (whose £3.4 billion estate includes 93 acres in Chelsea).

Across the globe, other names that fall onto “biggest landowner” lists are largely, but not exclusively, inherited royalty. These are Queen Elizabeth who technically “owns” 6.6 billion acres in Great Britain, Northern Ireland, Canada, Australia and the Falkland Islands (an incomplete list); King Abdullah of Saudi Arabia, also the technical owner of the 830,000 square miles of the kingdom; Pope Benedict, whose Vatican City is 110 acres within Rome plus another 177 million acres of Catholic Church properties around the globe; King Mohammed VI of Morocco, with a 175.6 million acre kingdom; King Bhumibhol of Thailand (128 million acres, including prime coastal properties); the Sultan Qaboos of Oman, whose country of 82,000 square miles lie largely in the desert; King Gyanendra of Nepal (57,000 square miles, including Mount Everest); King Abdullah II of Jordan (35,637 square miles); King Jigme Khesar Namgyel Wangchuck of Bhutan (15,000 square miles); King Letsie 111 of Lesotho (11,718 square miles, which includes diamond mines); the Emir of Kuwait (4.4 million acres, of 7 million in the nation); King Mswati of Swaziland (6,704 square miles); the non-royal James, Arthur and John Irving of Canada (owners of 3.6 million acres of land in Maine, New Brunswick and Nova Scotia); Sheik Hamad Bin Khalifa of Qatar (all 4,415 square miles of the small but strategically-located country); and CNN founder Ted Turner, whose accumulation of properties in Georgia and Montana (states in America) and in Argentina total 2 million acres. (Source: BusinessInsider.com)

As the American writer Mark Twain said, “Buy land, they’re not making it anymore.” Indeed, as the population of the U.K. continues its brisk ascent – about a 7 percent net growth in the past decade – the finite nature of the country’s land presses the matter further. There is a housing shortage and soon there will be a need to develop residential property to satisfy this growing need. The investor who can effectively accomplish land site assembly that meets market needs wins the day.

Individual investors – those who aren’t born to royalty – sometimes have the skills and knowledge to make strategic land investments in their own pursuit of personal wealth. But other investors enter into joint ventures with professional UK land investment strategists as a means of making strategic investments and development. For more information, consult with a qualified personal financial advisor.

Before Buying Raw Land for Development in the UK, What Due Diligence is Advisable?

With a press for new homes in the UK, investors are looking at raw land for development. The acquisition phase should include a thorough due diligence.

When investors look at raw land for its development potential, it can be an exciting process. But part of that excitement can mean moving fast when the opportunity is there – faster than a competing investor might be able to do.

A factor that necessarily slows this process – to good effect – is due diligence. This is the necessary probe into unseen and potentially problematic features of the property. We do not buy cars without a test drive and a thorough inspection of the vehicle, inside and out. The same can be said, writ large, on the acquisition of property.

The basic review of the due diligence process should include the following characteristics of the proposed land acquisition:

• Physical – What is topographically amenable to development, including subterranean barriers (rock that is difficult to excavate, for example), slope, wetland presence, archaeological features and potential toxic contamination? Also, a boundary survey needs to establish these topographical features and if any structures improperly encroach on others’ land.

• Legal – Aside from clearly established title, any existing covenants, liens and rights-of-way should be uncovered in the due diligence process. Zoning and site plan approvals also are critical and can sometimes be “deal breaking” considerations.

• Financial – Price and value of a property are not always the same thing. To the investor, it’s about buying low and selling high, so in the pre-purchase phase a realistic look at both parts of the equation is critical to the entire enterprise.

• Sustainability – Properties’ sustainability performance is about more than “doing the right thing,” however that still is a fine motivator and one that can favourably impact the future marketability of a property. But it can also affect the property’s economic performance in rental growth, duration to let, depreciation and the time required to sell the property. Of note, residential and some commercial built properties place high values on sustainability features, while some “green” scenarios can be a poor fit with industrial development.

• Social – How will this land transaction affect the surrounding community? And of equal importance but a slightly different question, how will the community perceive that it will affect them? Development always means change, and change almost always meets resistance. That said, advocates for affordable housing have come to be advocates for development, alleviating the outsized demand with an increased supply, which tends to lower prices.

From there, the investor can assess external factors that determine the land’s potential investment performance. This may have little to do with the land in its current state and much more to do with external variables: the potential for use re-zoning (amenability to change on the part of local planning authorities), the market needs for housing, and the economic equations under which homebuilders in the area conduct their business. Land that cannot be re-zoned, developed and re-sold is not land that is attractive to most investors with mid-term goals (i.e., to recoup their investment with growth in two to five years, for example).

While formerly the province of single land developers, individuals with £10,000 or more are participating in UK strategic land development within joint ventures. As such investment groups are coordinated by land development specialists, much of the risk is mitigated with a thorough knowledge of the industry – and application of the due diligence process. The new investor in land should weigh such ventures within the risk structure of his or her full portfolio, preferably under advisement of an independent financial specialist.

Avoid UK Land Investment Scams

Land investment scams in the UK are on the increase – but can be avoided.

There are valid opportunities to invest in land in the UK, primarily because of accumulating demand for housing. But shady operators are selling worthless property.

A great irony of the Internet era is that access to information should make us better informed and therefore smarter and able to make optimal decisions. But the success of scams such as Internet Nigerian bank swindles and corrupt land investment schemes prove this not to be the case.

The latter of these two – land banking investments – is fuelled by the known increase in demand for housing in the UK. With a swelling population and a pronounced housing shortage, it makes perfect sense that investment in UK land will pay handsome dividends. But the undeveloped land that will be most valuable is that which is most likely to be rezoned appropriately and is situated where population growth is most pronounced.

The Financial Services Authority warns against land scams, which are characterised by the following:

Aggressive selling – The adage that “anything that sounds too good to be true probably is” applies to land banking schemes. It begins with the schemers contacting potential clients. These are “cold calls,” where you have no existing relationship with the company. The pitch is straightforward and exciting: There’s a land rush about to happen, so anyone who can buy undeveloped land will make handsome returns on their investments. Some victims of land banking schemes were told they should expect a 100 to 130 percent return. If such an investment could do well, they would not be offering it to anyone but themselves.

Instead, the individual investor who truly is interested in land investment should speak with a qualified financial advisor.

Inappropriate or ineligible tracts – The fact of the matter is that most land banking schemes do involve actual land that the investors will own, providing them with legal title. The problem is the land is virtually worthless – even if located in nice places.

How does that work? The land parcels may be tiny, perhaps located in an environmentally protected green belt area, unlikely to ever be zoned for development. Some have no road access or they may be situated on steeply sloping hillsides. Some brownfield properties are sold, but are so contaminated by previous industrial use that they would require unaffordable clean up measures to bring them into compliance with environmental laws. The land schemers purchase these lands for a very low price, then subdivide and sell them to unsuspecting would-be investors.

If you are interested in a land investment, do your own investigating. Again, a trusted third party financial advisor can steer you to qualified land investment firms that has a track record of legitimate dealing and a proven rate of return on investments.

Continued requests for additional money – One trick of land banking frauds is that they lure investors with small down payments of £500, more or less. The money makes the victim feel invested, and they will continue to pay into the property fund over time. This is all that the operation wants to do, which is to create a flow of income (many such operations are based in other countries, where wire transfers are simple to execute).

Legitimate alternative investment programmes in land typically require between £10,000 and £25,000 at a minimum for participation. You would identify qualified, professional land investment firms through a qualified personal financial advisor.

What Is the UK Community Infrastructure Levy?

The purpose and implementation of the Community Infrastructure Levy is part of the 2008 UK Planning Act.

The increased burden on infrastructure from new developments is real and should be built into development costs. But is the CIL the way to do it?

The Community Infrastructure Levy (CIL) is a product of the UK Planning Act 2008, enforced since 2010, as a means of making developers pay for the increased burden on infrastructure that comes with new homes and businesses. It is an outgrowth of earlier recommendations in 2003 from economist Kate Barker, who felt that planning gains that went to developers should be partially channelled to overburdened infrastructure features (roads, schools, utilities, etc.) and to increase the stock of social housing.

UK strategic land investors, of course, need to take this into consideration. Infrastructure will make the properties they develop more valuable – but only if funds from the CIL are put to use in ways that materially affect the new developments. Evidence suggests this does not always happen that way.

In its most basic form, the CIL is charged on any building that has some degree of human occupancy (i.e., not parking or warehousing) including residential, commercial and retail space. Only buildings adding or constructing anew 100 square metres or more of floor space (gross internal area) on or after 6 April 2013 are subject to the levy. Changes of (existing) building uses are not liable, nor are structures that are not actually buildings (such as warehouses or wind turbines). Social housing development and buildings owned by charities are exempt as well.

Implementation of CIL has of course met some criticisms, many of which make a legitimate point. Because local planning authorities collect the levy and apply it as they choose – within prescribed parameters, of course – they are instructed to establish charging schedules. This was to be completed as of April 2014 but now is likely extended to April 2015. Those authorities can also set different rates for different sized developments, however they must establish evidence to justify those different rates.

Importantly, a “CIL in kind” provision allows that developers themselves may be best suited to build certain infrastructure components using cost-effective methods. For example, when building a community of 50 homes, the developer or homebuilder might be able to establish water and other utility services with the equipment they already have in place, where they are most familiar with the land and adjoining infrastructure. It could be much more cost efficient than to channel funds through a bureaucracy that then hires a third party to do the work.

A columnist for The Guardian who writes on local government issues took a swipe at the CIL for having a significant unintended consequence. Ian Blacker wrote in October 2012 that the CIL may actually be reducing the number of affordable homes. He cites how in London, the mayor wants to channel CIL funds to the gargantuan Crossrail project, not social housing. Also, that the CIL funds in any planning authority can be geographically used anywhere in that authority, well removed from where the infrastructure needs are increased by new development.

Blacker concludes the CIL is uncharted territory, stating, “we are entering the realm of unintended consequences.” To the developer, joint venture land investment managers as well as the local planning authorities, this may be unsettling news.

But the demand for housing is largely unmet; investors in development still find places to build and where the return on investment makes it worthwhile. Whether or not the CIL cuts into planning gains is yet to be determined; would-be capital growth fund investors are encouraged to consider CIL costs and speak with an independent financial planner to see where real estate investments might fit within a broader investment portfolio.

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 Does Green Infrastructure Benefit UK Housing Values?

How are housing values affected by green infrastructure?

While widely known as a social good, green infrastructure is also studied for its impact on property values. The green news is good.

It may seem that with the pressing shortage of housing in the UK, there should be flat upon flat being constructed all over the country, in urban centres as well as on and beyond the greenbelts.

But while that may have been the approach in the Post-War period, we live in a more evolved and enlightened era. Urban planning has developed as a science that takes into account many factors before launching into building schemes, those factors including transportation management, how infrastructure can and cannot support population increases and density, as well as how new development can impact the local and global environment.

These are matters of significance to communities, to be certain. But the greater sensitivity to environmental considerations ultimately guide the work of those involved in UK land investment and development. Sustainable architecture and design require a different initial perspective, sometimes incurring larger costs up front that achieve a return on investment a few years later.

In particular, the devastating floods of 2000 and the spectre of climate change now drive greater attention to the effects of built environments on the natural landscape and weather phenomena, and vice versa. And, these events informed a report from Forest Research made to the Departments for Environment, Food and Rural Affairs (DEFRA) and Communities and Local Government (DCLG). It was titled “Benefits of Green Infrastructure” and released in October 2010. The extensive study undertaken in this report (196 pages) covers the benefits of green infrastructure in several respects: the economy, social impacts, the environment, ecological dynamics, land regeneration and hydrological effects.

As one might expect, it delivers a positive position on what a conscious approach to development can mean. This includes the use of plants and topography (i.e., how rain water is managed) to mitigate pollution and flooding and to encourage physical activity and social connections. But what’s striking is that home values are also impacted.

For example, it may be intuitive that homes bordering on green spaces (including official greenbelt lands) tend to be priced higher. After all, homes and cottages that border golf courses naturally have greater value on a per-square-foot basis than those a few miles away. But the DEFRA/DCLG report identified how developing and improving properties that are adjacent to green space yields higher returns on the real estate market. “Green areas have a better image and attract more visitors, bring with them retail and leisure spending and provide job and rental opportunities. This in turn increases land and property values,” cites the report, which borrows directly from a study titled, “The Economic Value of Green Infrastructure” (Natural Economy Northwest, 2008).

To come upon this conclusion, researchers use the hedonic price method, which computes economic values for ecosystem or environmental services as they directly impact market prices. The hedonic pricing model is used by urban planners, strategic land partnerships and others when proximity to open space is clear, as well as when data on real estate transactions are available. In other words, it is based on real experiences in establishing home values.

How much can this value be increased with the presence of private and public parks? Here are two key findings of multiple studies in the DEFRA/CLG report:

1.    A view of a natural landscape adds up to 18 per cent value to a home’s property value in North West England.

2.    A view of broadleaf woods in peri-urban settings increases a home’s value on average across the UK by £7,680.

Business activity can also be generated with green infrastructure. A project in the Mersey Forest, a network of woodlands and green spaces across North Cheshire and Merseyside, involved new tree planting (8.9 million trees planted thus far), woodland management, human access to green spaces and recreational facilities, habitat improvement and land reclamation encompassing more than 500 square miles of land. Of note, this was done by engaging local communities and businesses heavily in the process. The programme was hedonically studied and found to have directly increased economic output by £2.8 million in gross value added in tourism spend, jobs related to products from the land and in health improvements.

The relationship between green infrastructure and health, as studied at the Mersey Forest, come from increased physical activity and a removal from built, urban environments that are characterised by concrete and a lack of growing plants and wildlife.

Green infrastructure often also includes a conscious and decidedly natural approach to water drainage. Hydrological effects of the use of plants and strategically placed bioswales and wetlands help convey and absorb storm water in place, instead of sending it far away in human-built drainage systems. The floods experienced in the UK and elsewhere are often due to a concentration of water where built-systems cannot accept a large volume all at once, as it happens in storms. Environment Agency UK reported as early as 2007 that a failure to absorb water in situ, particularly with new housing and commercial development, could inflict £54.6 million in damages from river and coastal flooding per year.

Investors in land development and homebuilders are increasingly conscious of these factors and are now incorporating such green infrastructure into their planning processes. Of course, dedicating land to green space might reduce the total acreage on which homes and businesses are built, but the increased value of those built acres might offset that cost in the short run and certainly add value over time.

Individuals who are looking at real assets/land investments should consider working with two types of advisors. One would be a land investment funds advisor, expert at taking raw land to productive development. The second would be an independent personal financial advisor, able to assess an investment opportunity relative to one’s overall wealth management portfolio.

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 ~