Immigration Pushing Up Housing Demand, Land Prices

UK housing and land prices are rising due to immigration and other population factors.

Immigrants to the UK, both ethnic and white, fuel a net population increase. This places price pressure on land and homes, the supply of which lags demand.

For several generations in the Post-War period, the United Kingdom has drawn immigrants from Europe and around the globe. Ethnic populations that have arrived on our shores since the late 1940s have been in concentrations from the former Commonwealth countries – people from the Caribbean, sub-Saharan Africa, India, Pakistan, Bangladesh and China, primarily – as well as individuals of white parentage from South Africa, Australia, New Zealand and Canada. This influx has been unabated in the first decade of the new century, contributing to the 7 percent increase in population recorded in Census 2011.

In simplest terms, increasing population of any kind will drive demand for housing, which these immigration patterns have done. Demand for housing also drives demand for land investment and development, which is currently lagging market needs, a potentially huge opportunity for those looking to get involved in alternative investments. Examining immigrant populations with a bit more complexity, it becomes easier to understand the interplay between immigration, economics and housing demand:

Ethnicity less a barrier to economic ascendancy - While Britain’s storied class structure has diminished a bit in recent decades, there remains a tendency for successive generations to achieve the same social class as their parents. But a series of studies cited by the Joseph Rowntree Foundation in its report, “Migration and social mobility: The life chances of Britain’s minority ethnic communities” (2005) at least finds that this tendency is colour- and ethnicity-blind. The report cites the Oxford Mobility Study (1983), which found that migrant populations, including those of colour, had “a weaker association between origins and destinations,” meaning successive generations fare better economically among immigrants than established populations (this same phenomenon is pronounced in the United States). The classic examples are the immigrants who toil at working class positions while their children achieve university degrees and enter into the managerial ranks.

Home building lags in the UK - The economic downturn since 2007 has certainly put a crimp on home buying and building, but not simply because people have less wherewithal to purchase property. While the population of England and Wales has grown by 3.7 million people in the past 10 years (many of them young and starting families, a point at which home purchases are typical), construction of new homes is remarkably slow. Only about 21,500 new home building starts were recorded in England in the second quarter of 2012, the lowest level in a century and thought to satisfy only about a third of actual demand.

High demand, yet financing is difficult - Younger people, including first- and second-generation immigrants, have difficulty getting mortgages under current financial conditions because they cannot muster a deposit (about 15 percent or more of the value at purchase). Some argue that banks could provide more financing, to builders as well as buyers. This creates a logjam that needs to break, and the sooner the better.

Rents are rising - Average private rents in the UK in mid-2012 were about £750 per month and rising. Higher rents are almost always an indicator of housing demand, and typically a trigger for new building. But the financing problem (see previous item) instead is pushing some builders – financed by insurance companies instead of banks – to build for-let housing.

Note that immigration is not the only factor at work. The Census also identified that pensioners now remain longer in their homes than in the past, a credit to their good health and vitality. We celebrate that fact, but must acknowledge it further exacerbates the housing shortage.

On the whole, this pent-up demand is driving interest in land for development in the future. While brownfield and green belt tracts are considered, undeveloped land appears to be increasingly attractive for development. Many municipalities are turning to their Local Planning Authorities, a product of the Localism Act 2011, to authorize rezoning of agricultural and other-use lands for housing. For many towns, the ability to attract employers includes having a growing population (that is housed, of course). They provide workers as well as consumers, neither of which is available if there is nowhere to live.

Are Land Investments Affected by the Libor Rate-Fixing Scandal?

How does the Libor rate-fixing scandal affect capital growth investments such as land?

Stringent lending practices by banks are blamed for the housing shortage in the UK. Might the LIBOR scandal, uncovered in 2012, play a role in this?
While residential real estate prices in London remain high and climbing, most other parts of the UK have seen a significant drop in home values since the financial crisis of 2008. Economists and pundits alike have pegged this to many factors in the economy, but since the Libor (London Interbank Offered Rate) rate fixing scandal came to light in 2012, some voices are questioning the degree to which this may have then, and since, affected home buyers. Of course by extension, the ability to purchase homes affects the fortunes of strategic land investors and developers.

A Fortune magazine senior editor wrote in late 2012 that because the housing market crash was due to many homeowners being unable to pay their mortgages, that Libor manipulations “added to the borrowers’ hardships,” making it at least a contributing factor.

Other voices argue that the damage of Libor manipulations benefited just as many people as it may have hurt. As much as rates were artificially inflated, just a bit, so too were they pushed down (driven by the bankers found to be responsible for their own reasons). It should not go without notice that about 45 percent of adjustable-rate prime mortgages and 80 percent of adjustable subprime mortgages are set according to the Libor rate. Student and auto loan rates are hitched to Libor as well.

But if there is one outcome of the scandal, it may have been the undermining of trust in the system overall. It certainly shakes investor confidence in the financial markets.

Billion-pound-plus settlements have been reached by those banks found responsible (Barclays, UBS, Royal Bank of Scotland.  American banks including Citigroup, JPMorgan Chase and Bank of America have not faced charges). And new regulations in the aftermath are predicted, with some variation between countries and their respective regulatory systems. In the UK, that may follow the Vickers proposals, which the International Center for Financial Regulation says will put ringfences around all UK-based retail and investment banking services.

While the punitive settlements reached between UK regulators and the banks sound hefty, relatively speaking they pale in comparison to the costs borne by borrowers since the fraudulent practices began in the early 1990s. According to the website ThisIsMoney.co.UK, small businesses’ and households’ annual mortgages were affected by hundreds of pounds each year due these transgressions. Consider how, says the site, Libor and therefore mortgage rates soared in the lead up to the 2008 financial crisis, particularly its climb around August 2007.

The credit crunch and housing price crash since has slowed investments of all kinds, not the least of which has been home building in England and Wales – despite a continued population increase and pronounced shortage of housing. Would-be new homeowners have difficulty meeting tighter lending standards, which has dulled the interests of most developers in building new homes.

As confidence builds again in the banks, and as lending loosens up, there is growing interest in the pent-up demand for housing that has occurred. In the meantime, to-let housing is becoming more common in the UK and elsewhere, particularly with new construction. The dynamics of banking and business, and the population increase, all suggest that home building has to increase in the future – perhaps this time, with fairer, less-manipulated lending rates. When that does, capital growth for landowners, land investors, and existing built-property owners should benefit as well. On the receiving end, more young people and families will be able to find a place to live – and pensioner parents will reclaim their homes for themselves once again.

For all considered, all market factors must be taken into account. The smart investor will always consult with a qualified personal financial planner to ensure the risk profile of an investment is tolerable and complementary to other assets in his or her portfolio.

Land Investments Relative to Traditional Investments in the Recession Era

How have land investments fared relative to traditional asset classes in recent years?

Investors are disillusioned with the performance of market-traded securities. Raw land is an alternative, but one which has its own requirements and limitations.

In the first quarter of 2013 18 firms resigned from the London Stock Exchange, up from 15 in the same time period in 2012, 10 in 2010 and 12 in 2009. Analysts told the Financial News that these departures since the collapse of Lehman Brothers are due to regulation, austerity measures and shrinking commissions.

Volatility and disappointing performances in traditional market-traded securities has been similarly widespread since 2008. Investors instead have shifted their money to alternative real assets, which range from hedge funds to commodities (agricultural, mineral), precious metals, art and antiques, real estate and raw land.

As one finance and investment advisor, Satyajit Das, told The Independent in March 2013, “Disillusioned with financial assets, the ultra-rich are focusing on scarcity - farmland, prime real estate in world cities with desirable properties, and rarities (fine art, antiques, rare cars). Even wine has emerged as an asset class, giving a new meaning to the term ‘liquidity’”. Das further explained the trick to capturing the benefits of volatility is to take advantage of large price fluctuations, particularly investment capital that is subject to “irrational exuberance”.

In other words buy low, sell high (of course). But what investors are also gravitating toward is the ability to manage the investment, either through knowledge of the asset before purchase - the skilled art dealer/buyer, for example - or in transforming the asset to something of greater value. This latter strategy is characteristic of strategic land development, changing property from one use such as agriculture or a brownfield property into residential use, for example.

This type of land investing differs dramatically from the real estate investment trusts (REITs) available in the UK since 2007. While the REITs have disappointed investors - in fairness, the lifetime of this asset class has existed almost entirely during this recessionary era - raw land provides a niche that investors find a bit more controllable. This is due to three characteristics of successful raw land investing:

• Pent-up demand - With the continued net growth of the UK population (credit immigration, a healthy birth rate and improving pensioner longevity that allows more people to stay longer in their homes), it’s a simple equation to understand that more people need more homes. But due to recessionary economics and stringent financing there are many Brits, younger people in particular, who cannot buy their own homes yet. As government programs to aid home buying and a better economy arrive, that demand will need to be satisfied.

• Working with knowledgeable land specialists - There are few land barons who build their empires on good luck. Instead, investor groups generally hire specialists who understand local economies and local planning authorities, as well as the homebuilder sector that ultimately is the buyer.

• Temporary illiquidity - For the investor, raw land is a difficult-to-exit investment strategy. The typical land investment at a minimum requires 18 months such that investors might instead focus on a three to five year period in which the investment builds in value in preparation for a sale.

While land investments yield varied returns, due largely to the apples-to-oranges nature of location, these three characteristics provide reason for investor confidence and the increasing popularity of the asset class.

Persons drawn to land investment should consult an independent financial advisor who can vet the offer relative to all instruments in the investor’s portfolio.

Should Land Investors Be Encouraged by the Rise in UK House Building?

The story on UK building, as told by statistics gathered by private and public organizations, is mixed. The best advice is to get good advice.

There is a flurry of information regarding construction starts in the UK in 2013 - some of it encouraging, some perplexing. Making sense of it for real asset investing is the challenge of the day.

Much of what the Royal Institution of Chartered Surveys (RICS) predicted at the end of 2012 has come to pass. A pick up in housing starts has indeed occurred, but not until the second quarter after a small drop in the first quarter. Overall for the year, RICS predicted 115,000 new housing starts. But while its unclear where the year will end up, a survey of data from around the UK reveals the following somewhat tantalizing details:

• Glenigan Constructing Insight reports that for all types of construction - private residential as well as social housing, healthcare, education, industrial and infrastructure - activity was up 2 per cent in the second quarter of 2013 (as compared to the same period one year prior).

• Infrastructure leads the way with an increase of 41 per cent growth. By Glenigan’s reporting, large road projects can be credited the most with this.

• Utility building is up 29 per cent.

• Housing starts are up 12 per cent versus 2012.

• Regionally, the West Midlands report an increase of 70 per cent (after only a 10 per cent rise in the first three months of 2013) of all types of construction.

• The South East, which experienced a 20 per cent decline in May was up again by one point compared to 2012, with private housing and infrastructure building responsible for those gains.

• All construction starts in Scotland were down by 37 per cent, an unfortunate trend with similar deficiencies over the previous six months.

• Government investment in health and education are restrained, leading to fewer and lesser-sized projects. The Priority Schools Building Programme might alter this to the positive through 2014.

The chief economist for RICS, Simon Rubinsohn, feels that first-time buyers of homes - rather, the lack of them - continue to be a drag on incentives to build new homes. “Even with the Funding for Lending scheme and some other government policies beginning to be felt in the mortgage market, many first-time buyers will continue to find it difficult to secure a sufficiently large loan to take an initial step on the housing market,” he says. Instead, he thinks the government should act to set up conditions that will increase building of rental or for-purchase housing, and to bring new development quickly onto the market.

This holds special implications for the land-to-housing development investor, many of whom apply alternative investment funds to property funds. While building may appear to be healthy today, there needs to be significant construction of new homes at an accelerated rate just to meet basic demand. But the strategic land investor him or herself must be sure this type of investment is appropriate for their own portfolios. First, they must work with a team of knowledgeable specialists who understand how to manage the entire process effectively. They also need to be willing to wait a minimum of 18 months before they see a return on investment. They also should simply get the advice of a personal financial counsellor who can objectively evaluate the strength of the joint venture land investment.

Property Funds vs. REITs: How Investor Timing Needs Matter

Investor timing matters: Property funds compared to REITs, timing by the investor is everything.

Returns on investment are not the only guide to where one puts their money. The relative liquidity of the funds, and what that means, should be considered as well.
The UK arrival in 2007 of real estate investment trusts - REITs - was heralded as a new era for investors. “For the wider economy, investors are expected to benefit from greatly enhanced dividend payments and growth in the investment property market,” Liz Peach, chiefexecutive of the British Property Federation, told The Telegraph in January 2007. She said it would bring benefits to the British economy as a whole with efficient property use and asset management.

Economic conditions being what they have since 2008, it is difficult to fully ascertain the long-term prospects for REITs in the UK. But the UK-REIT Survey 2012, produced by BDO LLP (an assurance, tax and corporate finance advisory firm), makes several notes about how these types of alternative investment vehicles have fared in the global recession:

• If a UK REIT has a geographic or sector focus (perhaps both), it performed better than trusts that did not.

• Performance was not a function of size (i.e., some smaller and some larger REITs did well, and others of both sizes did poorly)

• A retail property focus - not surprisingly, given the recessionary conditions and reduced consumer spending - tended to cause certain REITs to turn in lesser performances.

What is well understood in mature REIT markets such as the US, where REITs have existed across several boom and bust cycles, is performance of such funds is largely tied to the overall economy and even the ups and downs of daily market trading. Traded like a stock, price volatility is to be expected for the REIT investor.

But that same volatility speaks to another key consideration of the investor: timing.A REIT is an exceptionally liquid investment, which may well suit the needs of one investor over another. In contrast, property funds that commit the investor to a specific piece of property may need to be held for two to five years to appreciate the outcome of the investment.

What is the tradeoff if one chooses a property fund over a REIT? To use a gambling analogy straight out of Las Vegas, a REIT might be characterized as a slot machine, roulette wheel or craps table. A tiny amount of skill is required to get in and the smart player gets out when the numbers fall to his or her favor, if they do. A property fund, in contrast, is more like a good game of poker. Skill and strategy – and a longer period of time playing, typically – help the player achieve a good outcome.

(For background, property funds often deal in the acquisition, site planning and resale of strategic land. The investor is well informed of the property and its prospects for value growth during the projected time period of the investment.)

Individuals interested in REITs or property funds should discuss it with a personal financial advisor. As previously noted, investors’ risk tolerance and timing vary.

Planning Your Exit Strategy in a Land Investment

When investing in land, your exit strategy is an important consideration.

Timing is everything, particularly in how investments pay off. The investor in raw land needs to know when the asset will increase to its optimum sale price.

The goal of all investing is to make money, to sell at a price higher than that at which the investment was purchased. But that simple formula fails to factor in the extremely important matter of timing: how long it takes for the investment to achieve that optimal price, as well as how the timing affects the investor. Taking a good profit in one year might be disadvantageous over taking it in another, largely due to taxation.

The essential nature of timing – when to invest and when to disinvest – affects all classes of investments, both those in the traditional markets (stocks, bonds, REITs) and the less traditional real asset categories (strategic land/hedge, property funds, precious metals, minerals, rarities such as antiques and fine art, etc.). Much of that has to do with the intrinsic (some might call it organic) nature of the investment and how it relates to macroeconomic dynamics, while external factors such as government subsidies and regulations can affect it as well.

A good example is renewable energy in Germany. A robust government sponsored program (“100,000 roofs” and the Renewable Energy Act) fostered small and medium-sized companies (as well as university research in partnership with them) to develop photovoltaic, wind, biomass/waste and hydroelectric electricity sources. With government supports and guarantees, investors had a good sense of where things were going and when. The timing of their disinvestment and payback carried more certainty, which of course attracts more investors.

Notably, in German investors in solar PVs and wind can expect the timing of their returns to be shorter than those in hydroelectricity. It simply takes more time to achieve a favourable return-on-investment from dam construction.

In a different asset category, raw land in the UK, the macroeconomics are well understood: the UK population grew 7 per in the decade to 2011, even while the nation’s home builders have not been increasing residential inventory to keep pace. Consequently, there is a housing shortage that will need to be filled eventually (and the sooner the better). The government plays an important albeit indirect role in that local planning authorities are now given greater reign over decisions about land use designation. In other words, if a local planning authority strongly identifies an area for home building or other development, it is far more likely to happen.

To the land investor, ceding land use planning from national to local authorities is very important to timing – and was long awaited. The Kate Barker recommendations in 2004 (the Barker Review of Housing Supply) looked at rising housing costs and the inadequate supply of new homes to meet the need. The Barker recommendations were factored into the modernised core UK planning principles, which include:

• Objectively identify development needs of an area (housing, business, etc.)
• Drive and support sustainable economic development, which includes the delivery of homes, businesses and industrial properties 
• Provide the necessary infrastructure to support new developments
• Account for market signals such as land prices and housing affordability, and set strategies for allocating land in sufficient quantity to meet the needs of people and employers

The well-managed land investment can meet these criteria, and as such is more likely to qualify for expedited approvals. The ability to deliver value to investors sooner rather than later is a clear advantage of this.

Individuals involved in any type of investing should get solid counsel from a personal financial advisor. This investment professional should work independently of any financial instrument to holistically review your investments, goals and anticipated expenditures to determine where an asset would be timely.

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.

Eurozone Crisis and UK Land Values - What Might Happen?

There are increasing questions and developments around UK land and the Eurozone crisis.

While the UK population swells, very little is being added to the country’s housing inventory due to economic uncertainty. It is a mixed picture with emergent ideas.

As the Eurozone crisis continues to hover over the Continent as well as the United Kingdom, a mix of factors is affecting the value of built property and land. In some ways, one could say the increasing demand for places to live is akin to water rising behind a dam. The question is where will that water - people who hope to own houses sometime soon - be let loose?

The Royal Institution of Chartered Surveyors said early in 2012 that “something bold is desperately needed,” as new home building is at about one-third of what would be necessary to meet demand. So where are the supply-demand dynamics of our economic system? Blame Greece, perhaps, as lenders are spooked by what might happen if the EU collapses. No one knows at the time of writing what exactly is in store, so at best we can examine certain key dynamics relative to housing. From there, the value of strategic land can be somewhat projected.

Population increase, and pensioners are staying put - The UK Census 2011 showed an overall population increase of 7 percent over the previous decade. This leads to a natural increase in demand for new housing, but another factor adds to that: older members of the population are healthier and therefore remaining longer in their homes. This reduces the supply of granny flats opening up to young couples – which, reportedly, are living with their grannies.

Wealthy foreign buyers attracted to London - Savills reports that well-off Europeans are fleeing France, Spain, Portugal, Italy and - irony alert - Greece over worries related to the Eurozone crisis. They are buying higher-end properties in London, which explains why prices remain strong there and in the South East of England.

Low interest rates driving some buyers - It is a great time for homebuyers because mortgage rates are low. The caveat on that is, of course, that the buyers must have a good credit history and a healthy established deposit, at least 10-15 percent and more if possible. Without that, buyers are unlikely to get a loan from banks that have scaled back lending due to - you guessed it - the Eurozone crisis.

Some investors building-to-let - In August 2012, The Guardian economics writer Patrick Collinson noted, “demand is there, but the supply is not forthcoming. The obvious reason is finance.” He argues for relaxation of the green belt rules, but notes this is not the core of the crisis. Instead, he offers, “one solution, barely tried yet in the UK, is build-to-let…[it] is about increasing supply, which should cap rents and soften house price increases.” He adds that Hearthstone Investments (fund managers in residential property) and Aviva (insurance) are cumulatively raising £1.5 billion to invest in new builds for letting. This mirrors some markets in the U.S., where developers are finding a stronger rental market fuelling new construction.

It’s too early to predict what, when and how the Eurozone crisis will subside and what exactly will happen with land values. But the UK continues to be an attractive draw to immigrants, and the making-babies business shows no sign of subsiding. The finite amount of land available for residential construction suggests the supply-demand curve will continue intersecting ever higher.  Those looking to make alternative investments should take note.

Demographic Trends Pushing Land, Housing Values Up

Land and housing values are affected by certain demographic trends.

Housing values are affected by many factors: the economy, the availability of financing, building, population growth and variables of age and ethnicity.

For those considering making an alternative investment in strategic land, it is worth understanding the housing shortage in the UK.  It’s a classic case of short supply, high demand - and increasing prices. Perhaps less well known are the underlying factors, particularly population trends:

Net increase in population for England and Wales

Unlike other parts of Europe and Russia, there are clear population increases now and likely into the future:

• The population grew by 3.7 million people in 2001-2011, a rate of about 7.1 percent.Growth was largely due to inward migration, higher birth rates and a lower death rate in the elder population.

• There is projected population growth of 4.9 million in the current decade, and by 6 million additional residents between 2020 and 2035.

• England and Wales are now populated by 56 million people, the highest ever recorded. Concentration and growth rates are highest in London and the East Midlands, lowest in the North East.

Influx of professional class immigrants

Part of the growth of population can be attributed to troubles in the Eurozone:

• Anecdotally, we know of working professionals moving to the UK because of the Eurozone crisis. The Financial Times reported in June that the posh neighbourhoods including Mayfair, Belgravia and Knightsbridge were destinations for well-heeled foreigners looking to establish a London address (this is being curtailed by a stamp tax imposed by the chancellor, George Osborne).

• Savills, the real estate firm, has data that reflects these increases: Buyers from Spain grew by 14 percent in 2011; from Italy, by 46 percent and from Portugal, by a whopping 153 percent.

• London real estate prices, atypical of the housing elsewhere in the UK, maintain their value perennially. Save for a dip in 2008 and 2009, prime Central London home prices have continued on an upward swing that is divergent from the rest of the country since 2005. As it is said, there will always be London.

• The children of working class immigrants, many of whom arrived during the Thatcher era or before, are experiencing better-than-average social mobility, adding to the class of people who are likely to purchase homes.

Population is aging - but not moving

Hooray for the pensioners in that they are living longer and more vital lives. However, that means they are staying in their homes longer, which keeps their flats and cottages from coming available on the market:

• As a share of population, people aged 65 and older constitute the largest ever portion at 16.4 percent

• In the 60-64 age group - baby boomers - the number of individuals increased by 800,000 between 2001 and 2011. The total in that category is about three million.

• The largest proportion of older people live in the South West; proportionally, London has the fewest pensioners.

Rental rates are up (£750 per month in private housing, on average), which usually precedes greater demand for home purchases.  But developers are not finding loans nor are younger buyers able to find mortgages due to tight credit markets. Consequently, there is building demand for housing – but the demand is not being satisfied.

Does this portend explosive growth once credit is eased? The factors are all there, but the question can only be answered by the banks... and time (something those hardy, long-lived pensioners, many of whom lived through the War and shortages in the aftermath, might be able to tell us about).

Can the UK Housing Crisis be Eased with "Hard Money" Loans?

The housing crisis in England and Wales is one where too few homes are being built because would-be buyers can’t get loans. "Hard money" loans as a solution considered.

“Hard money” loans - more commonly issued in the U.S. but which exist in UK lending between private parties, for the most part - allow lending to individuals and companies that may not be able to get traditional loans from a bank. They are collateralised, where an acceptable amount of equity in an asset will assure the lender that their loan is protected (a loan-to-value ratio of 60-70 per cent, usually) in case of a default.

With lending at the crux of the UK housing crisis, can these hard money loans help ease the problem should they become more prominent? Will homebuilders or homebuyers be able to achieve financing with these subprime loans where they could not through traditional channels?

Most analysts do not think so. First, as private deals, hard money loans are unlikely to happen on a mass scale absent a larger, established lending institution. And the value of land, being what it is, as the basis for the collateral is unlikely as well - who can own land and yet not afford to build (other than, perhaps, inheritors of land)? Also, so-called hard money loans are typically made with short-duration terms, three years or less – good enough for a builder, perhaps, but hardly enough time for a home owner-occupant.

There are reasons to think that Brits would be able to start building and buying more homes. A poll of market watchers taken by the Reuters financial news agency in February 2013 found some hopeful signs:

• British home prices have not crashed as deeply as those in America. People who owned houses before, say, 2007 are in a good position to trade up if their income allows.

• While the threat of a triple-dip recession looms, more people are working in the UK than ever before.

• Interest rates from the Bank of England have remained steady at 0.5 per cent for those who qualify (which usually requires a good down payment on the property they wish to purchase).

• At the end of 2012 mortgage approvals rose to 55,785 and are expected to climb steadily higher in 2013.

• The government’s Funding for Lending scheme (FLS) may find greater use among lenders as time goes on, according to Nicholas Wrigley, chairman of Persimmon PLC, a leading residential housing developer (there are those who disagree with this, but time will tell).

The Guardian reported also in February 2013 that house sales are on the rise, according to the Royal Institution of Chartered Surveyors (RICS). But the organisation warms that the recovery is fragile and remains uninviting to first-time buyers.

Other means by which housing construction can commence to meet the growing UK population is for builders to elect to construct to-let housing where it is needed most. With so many young families looking for space, renting is increasing while home ownership is on the decline. “Triple dip-induced paranoia appears to be stalking the market, with many would-be buyers in the family sector choosing to rent for the time being,” said the principal of a Wakefield-based estate agency.

Another agent in Maidenhead, Berkshire, observed, “Buy-to-let investors are coming back to the market noticeably.” The Guardian reports that in the fourth quarter of 2012 that buy-to-let mortgage loans reached a 16 per cent growth over 2011, constituting 13 per cent of all mortgages granted last year. Building societies (BSAs), mutually owned by members who historically encourage individual home ownership, are increasingly extending loans instead to landlords; this is due to both demand factors and because higher fees from buy-to-let customers net better revenues for those societies.

It appears that investors in strategic land and housing development are exploring various means by which to increase housing stock and achieve asset growth in the process. Before embarking on such an investment, individuals should work with a personal financial advisor who can weigh risks against alternative investments in a holistic manner.

Be a Land Investor, Not a Real Estate Speculator

With demand for housing at an all-time high in the UK, it is easy to become enthusiastic about land investing. Just be careful about over-exuberance.

The data analytics company Hometrack showed an interesting and perhaps alarming trend (depending on how you look at it) in home sales in May 2013. While the sales agreements for the month were up 8.2 per cent, new homes being built were only up 2.8 per cent. Does this outsized demand level not only push prices upward, but up into a real estate bubble once again?

Certainly, to Londoners that may seem to be the case. Central London home values recovered very quickly from the financial crisis and its aftermath in 2007-2010. But much of the demand driven there in that pricey market is a function of it being London: home to the international well-to-do, many of them from other countries who are here seeking a more stable society and economy. The same phenomena are observed in international cities that include New York, Tokyo, Hong Kong, Sydney and Melbourne.

But contrast that to home values in the rest of England and Wales. In the prosperous South East, prices are up but far from the levels seen in London. The Midlands and Wales have continued to see slow growth. The Funding for Lending scheme from the UK government, and historically low interest rates from the banks, are helping create some of that demand.

This is not surprising considering how there is wide concern about a third recession in 2013. In the economic seesaw seen over the decades, worries about the economy reduce purchasing of all kinds. When prices are low enough on such things as real estate, property fund management teams often swoop in to buy at the lowest prices in anticipation of a solid growth in asset value in the near term.

Land speculation is rarely a beneficial phenomenon in the long term. It generally means land prices rise above the productive value of the land itself – for example, when £10,000 per hectare is the going rate when under any zoning circumstance (agricultural, commercial or residential) the land cannot produce that much value. When the bubble – more a psychological matter than good sense investing – bursts, lenders to speculators cannot recover the loans, which then creates serious problems in the financial markets.

It should be noted that land speculation typically and quite obviously occurs when demand outstrips supply. And in the UK, where 130,000 fewer homes are built each year than are needed, that indeed is the case. What holds back speculation from happening now is the recent experience of a burst bubble – this factors heavily into private investor and financial institution thinking. No one wants a repeat of 2008.

No one – not governments, not homebuyers and most investors – likes a rapid rise and rapid fall. This kind of volatility leads to big winners, big losers and a generalised instability. The more solid land investment operates on a different model, where reasonable and logical strategies lead to a slower degree of growth.

So where do land investors wanting capital growth find those solid returns? Real estate investment trusts (REITs) have had at best middling success since being introduced just prior to the recession. They seem more subject to the dynamics of market trading than land and building supply and demand.

Strategic land investors working with land development experts often do so in micro-markets. In areas where employment is growing, for example, there may be strong incentives for local planning authorities to grant land use changes from agriculture or industrial to residential (to accommodate economic development). A strategic land investment will necessarily require work on the part of the investors (or their joint investment advisors and agents) to achieve the zoning change, design and develop infrastructure, then sell the land to homebuilders. This process is perhaps too slow for speculators, taking 18 months to five years to complete and to achieve a return on the investment.

Even with the more strategic approach to land development, an investor is strongly advised to work with an independent financial advisor. This helps the investor weigh the relative risks and rewards of land development against his or her capital growth planning and make decisions based on objective criteria.

How Towns Make Zoning Changes Through Local Planning Processes

Planning changes can revitalize local economies, benefitting old and new inhabitants alike. But how does planning work – and what does it mean to developers?

When the new UK National Planning Policy Framework was published in March 2012, it signaled several bold and important steps forward for communities, developers, UK land investors and their ultimate occupants, both residents and businesses. Priorities included shifting authority for local plans to communities (as opposed to regional or national authorities), a reduction in paperwork and jargon, expedited approval processes, as well as an emphasis on historic and natural environment preservation as well as raising design standards.

This comes after a long evolution of the planning process that is necessary in a growing, modern society, but one which was often regarded as obstructionist and bureaucratic. Modern planning as a discipline in the UK began in the late 19th century with the “garden city movement,” which emphasized parks (or “greenbelts”) surrounded by self-contained communities, with what were considered to be appropriate proportions of agriculture, residences, commerce and industry.

Evolving building methods, the skyscraper in particular, along with an increasingly motorized society and the Second World War ushered in new eras in how cities and towns function and are organized. Planning methods and priorities have evolved over time to accommodate these changes – and not without politics, competing economic interests and occasional rancor. The Localism Act 2011 and the Planning Act 2008 are the most recent iterations of this evolution.

What Britain encounters today in broad brush is an increasing population – 7 percent growth between 2001 and 2011, which other parts of Europe are experiencing stagnant and sometimes declining populations – and a current shortage of housing to keep up with this growth rate. Further, a widespread concern for the environment is affecting planning on two levels: one is to build in such a way as to minimize humanity’s impact on natural systems, and the second is to protect new development from the impact of climate change. The country remains committed to the provision of social housing, however how much and to what degree will always generate debate.

How planning changes unfold

With greater authority on the local district or borough level, planning does its best to negotiate these many variables. In the evolution of modern planning in the UK, a top-down authoritarian process has yielded to a hybrid of professional expertise overlaying a very democratic planning and development method. This necessarily means that economic interests driven by elected officials, employers and developers will intersect and often (but not always) complement the interests of community organizers and social workers.
 
In some districts, the need for new development is clear and universally felt, with all parties amenable to a zoning change that will rapidly lead to the arrival of bulldozers, utilities and new street grids.

But that is not always the case. An employer or employers may decry the shortage of appropriate workers in a region and hesitate to establish or grow operations before housing and transportation are expanded to bring in those employees. But while the general populace may not be aware of that, elected officials and planning authorities might be in conversations with developers and investors who want to build to accommodate growth. Then, the proposals for new development may be aired through a public consultation process.

It is then beholden on developers to solicit input from existing residents and businesses regarding the zoning changes. Larger developments might conduct community education programs through local media, including online as well as traditional print and broadcast outlets. Input from environmental and heritage agencies is often solicited as well.

While this can involve extensive campaigning and political deal making, the process of getting community approval for planning changes can also be smooth and collaborative. Ultimately, it is in the developers’ best interests to establish friendly and cooperative relationships with the neighbors.

Investors in land development – those who buy raw land or brownfield tracks that might be remediated, as well as those who construct homes, retail stores, commercial structures and industrial buildings – of course hope for a smooth and easy process. Some properties and planning authorities are simply more likely to make changes than others, for a variety of reasons. Currently, the pressing need for housing provides strong impetus to alter land use zoning.

Individuals interested in investing in land or real estate development necessarily should be concerned about local planning authority’s oversight of land use. But as with all investments, those investors need to consider how buying real assets fit within their overall financial portfolio. This is optimally done with an independent (i.e., neutral) investment advisor.

Overcoming Difficult Landowners In Strategic Land Investment Transactions

Strategic land investing can often entail buying from difficult landowners.

Landowners’ financial, occupational and emotional conditions affect their willingness to sell property … and the land buyer benefits from knowing this.

Investing in raw land for the purpose of strategically increasing its value in a relatively short period of time – typically, turning unused property into housing or commercial development over a period of 18 to 60 months – involves several moving parts that require expert management. One part is to achieve a planning authority change, allowing development where it was previously disallowed. Another part is to develop it for what the market needs (for example, the UK’s housing shortage strongly suggests that residential development is in greatest demand). But a third part is actually the first critical step, to acquire the land at a feasible price.

In most instances, this means that someone, such as a strategic land investor, will need to buy from a farmer or other landowner. This farmer or other landowner may well be content with the land’s status, probably across several generations of ownership within the same family. Acting rationally, the landowner (which is sometimes a group, such as family heirs of a recently deceased owner) will clearly wish to be paid an optimal price for the land.

This becomes a problem when the landowner’s expectations are greater than what the market will bear. They may have heard planning authorities are considering changes in land designation that would increase the value of their specific land tract. He or she may hear of quarter-hectare properties selling in nearby towns for £20,000 or £30,000 to developers. And yet they do not realize those prices come after several costly improvements are undertaken, such as site assembly and infrastructure additions (roads, water, etc.).

In such scenarios, the landowner(s) might retain legal counsel to either resist selling or to hold out for a higher price. There is nothing illegal or unethical about that, of course. But the land investor needs to be a skilled negotiator, which includes having information about the seller’s position. For the buyer, there is great benefit in knowing the following:

• Taxation on the landowner’s proceeds of a sale – The sale price hardly represents a clean economic gain for the seller. In most jurisdictions they will need to pay taxes on the sale, hence the buyer should be sympathetic to that argument. The amount they must pay can be ascertained with minimal research.
  
  
• Sense that the value will likely increase in the future – As landowners are aware of the increasing value of land and the critical need to build more housing in the country, they may subscribe to the idea that the longer they hold the property the greater that value will be. Challenging that notion, however, is the fact that land valued almost across the board decreased in the recessionary cycles since 2008. Regional shifts – and the investor having options to buy elsewhere – can affect this.
  
  
• Patience (or impatience) at turning the land into a new asset – A long-held property in the hands of one owner or a family may have outlived its use to them, the obvious case being land held by a retiring farmer. But some sellers are perfectly happy holding onto land for its use, or non-use, and therefore are less motivated to sell. Often, heirs who have recently received the land are the most motivated to sell the property – in particular if taxes on the property exceed its value to them.
  
  
• Sellers’ emotional attachment to the land – Not all land is held for rational purposes. If an individual holds an emotional attachment to property, perhaps because that person is the last in a long line of several generations of owners, they will be less motivated to sell.

Some of these factors may kill the deal, but in many situations they can be overcome and intrinsic to the negotiation. Skilled land investors never bet the bank on a single piece of land, opting instead to conduct simultaneous discussions with different landowners in different areas of a town or borough.

Investors in land funds are similarly wise to consider all investments within their portfolio with the help of a personal financial advisor. Strategic land investments can yield strong returns, but are less liquid than REITs and other market-traded securities.

How to Mitigate Risks in UK Land Investments

What are UK land investment risks and how are they mitigated?

Three factors improve land investments for housing: Funding for Lending, local planning authorities and splitting risk between investors and builders.

The rate of building new homes in the UK should be about 230,000 per annum, and yet the country’s homebuilders are constructing only about half that number. Naturally, that translates into very high housing demand – which to the alternative investor in any form of development (including those who acquire raw land to develop into residential property) should be indication of a pretty good financial bet.

But the housing market can be tricky. First, there are many who are quick to criticise the government for failing to provide programmes that can effectively restart the housing sector. Second, planning authorities answer to local political considerations more than investors’ needs to seek a return on their investment; they often cite greenbelt traditions and restrictions as reasons not to grant zoning changes that would allow development. Third, building structures on speculation there will be buyers may not be the land investor’s best talent.

These tend to be problems encountered by the unseasoned investor, however. Note that while inadequate, about 100,000 homes still are built every year. How do professional land investment fund managers do it? The answer largely lies in how each of those confounding factors are mitigated:

• Government programmes – The Funding for Lending scheme, instituted in 2012, is beginning to show signs of having a positive effect. Unfortunately, it hasn’t unleashed a boom in homebuilding and home buying just yet and is criticised for its downward effect on returns to savers. That said the stakes are high in political circles to find solutions that will truly stimulate the economy. To the land investor, perhaps the best advice is to acknowledge the government might be able to help things along, but it would be unwise to depend on it.

• Local planning authorities – It would be foolhardy for any investor to purchase land without some knowledge on how the local planning authorities would rule on a petition for a zoning change (note: generally speaking, a use re-designation can be a very fast way to add value to some properties). Professional land development specialists have relationships with the political structure and members of the LPA that allow fair knowledge on what might be granted.

• Building on speculation – While in past eras the land investor covered the full range of development, from dirt to doorsteps, the process has been bifurcated to allow homebuilders to assume some risks and rewards. Investor groups, working with specialists, can acquire land and build infrastructure to support building (roads and utilities, primarily). But the actual home building and capital it requires can be handled by homebuilders. This not only mitigates risk, it brings in two sets of business analysts to assess the potential for the property at an early state.

What should be apparent is that land investments are like any other asset: there will always be some risk. Would-be investors are advised to speak with independent financial advisors to determine what degree and type of risk is tolerable in their portfolios.

How to Identify Qualified Joint Venture Partners in Land Investments

Qualified land investment joint venture partners a lynchpin of smart investing.

The history of land investment and developed real estate are instructive. Having the right joint venture partners is a key component.

In the UK, Canada and American real estate circles, the 1980s story of Olympia and York (O&Y) is often cited as a lesson learned. The highly-capitalized firm ran into an unfortunate set of circumstances with its Canary Wharf (London) and Manhattan properties in the late 1980s and early 1992, ultimately declaring bankruptcy with $20 million in arrears to various banks and investors.

The family running the firm, the Reichmanns, were seasoned real estate professionals. However they were overleveraged in two markets that were going through a pronounced slump. Their story provides a sobering picture of how even experienced investors can get involved in property and land investments that sometimes fail spectacularly.

Still, real estate in general is the means by which many of the world’s greatest fortunes have been built. And it’s not a game of Monte Carlo-like chance: there are key characteristics of joint ventures in land that increase investors’ odds of achieving asset growth. They include:

• Experience in the type of land investing being undertaken – There are many ways to invest in real estate: existing commercial properties, raw land, industrial warehousing, residential development and real estate investment trusts (REITs). One or several partners in a joint venture should have expertise in the type of investment where you put your money.
  
  For example, a raw land investment would best be managed by professionals who understand how to turn otherwise dormant property (or what might be currently used for agriculture, for example) into viable residential development. This requires acumen with local planning commissions, being able to judge the likelihood of a zoning change that would benefit the local economy. It is not a task for amateurs.
  
  
• Shared ROI interests – Some investors expect a return on their investment in one year. Others are patient to wait two, three, four or five years or longer. What doesn’t work is when a joint venture partner is on a different schedule and therefore wishes to exit the investment early. Investment managers should be able to project when a real estate investment will provide an optimal payout – and then deliver on that projection.
  
  
• Appropriate allocation of funds (e.g., focus on a single property) – To avoid the mistake made by Olympia and York, it is important that the fund investment managers have a demonstrable track record of success. Just as important, their funds and managerial attention should be focused on properties where economic factors are promising. For example, in the UK market a growing population and under-investment in the housing stock during the past ten years is driving high demand for housing. Whether those properties are built for sale or to let is a matter for further discussion, but suffice it to say people need to live somewhere and that need shows no sign of abating.

Ultimately, remnants of O&Y recovered some of the company’s fortunes in the UK and Canada (but not the US). They and their investors learned their lessons – and prove once again that great fortunes can be achieved with real estate and land investment.

Be certain to work with a personal financial planner when considering any type of investment, be it in real assets or traditional market-traded securities.

How Property Fund Investors Can Fare Better than Real Estate Developers

Are real estate developers disadvantaged relative to property fund investors?

Most real assets are performing better than the volatile stock market. But for some, property funds hold greater attraction over developed real estate.

Since the financial crisis of 2008, investors have soured on traditional investments due to factors of poor performance. Instead, they’re turning toward alternatives that include land investments and property funds. The reasons for this are easily understood: The growing housing shortage in the UK portends good near- and mid-term value growth for all aspects of residential real estate, particularly in light of robust (7 per cent since 2001) population growth.

Of course, not all real estate is the same for investors. Within real estate are two distinctly different types of investments, built properties and raw land. Some investors choose built properties or to invest in the developer who is managing the construction and sale of homes and commercial structures. An option to that is raw land, ripe for plan rezoning from, say, agricultural to residential-designated land.

Both have their merits, of course. But land investment might hold the advantage for at least three reasons:

• Adaptability to market needs – Raw land can be converted (pending approval of Local Planning Authority approvals, of course) to the use that is most critical to the local economy. This flexibility allows the land investment fund to prepare parcels for what will be needed in a relatively short period of time. On already-built property, investors have only what is there unless circumstances allow for the extraordinary expense of demolition and rebuilding – which only rarely makes sense from an asset growth perspective.

• Less investment in development (and associated risks) – The boom-bust cycles of the past several decades remind us of how a billion Pounds can be squandered rather quickly when a large property comes online at the precise moment when no one wants it. See “Canary Wharf, Olympia & York” for a spectacular illustration of how badly property investments can fail.

• More liquidity (but still not volatile) – Perhaps the Achilles Heel of real land assets is the illiquidity of land, with or without property. But land investments that at most involve the light infrastructure required of residential neighbourhoods (roads, sewers and other utilities) are much more easily sold than property involving structures. While that pales in comparison to real estate investment trusts for liquidity, real property is not nearly as subject to market fluctuations as are REITs.

To be sure, both investors in property funds and land investments tend to achieve asset growth in well-managed situations. But from land to property development, the path is quicker. With a seasoned team of land investment professionals, a joint venture partnership can identify and manage properties for maximum value appreciation and resale between 18 months and five years after acquisition.

All investments carry risk and should be considered in relation to one’s full portfolio of financial instruments. Be sure to contact a personal financial consultant before embarking on any investment.

How Climate Change is Affecting Strategic Land Investing

Savvy strategic land investing now must consider climate change.

Two factors face land investors and developers: How to minimise their impacts on the environment, and how to mitigate potential damage from a changing climate.

The year 2012 was the wettest on record for the UK, according to the National Flood Forum, a coalition of community groups throughout the country. The organization warns that flooding is possible anywhere – flooding in never-flooded-before West Sussex in June of that year provides an instructive example – and should be considered a top emergency priority.

Part of what is so surprising about this is the drought that preceded these floods by mere weeks; widespread hosepipe bans were in place as recently as March 2012. But by the end of the year, nine people had died from excess rains and runoff. Such is the experience of weather volatility under conditions of climate change.

Meanwhile, the UK is undergoing a housing crunch that calls for no fewer than 4.4 million new homes to be built by 2016. Housing traditionally taxes both the demand for water, a problem during droughts, while concurrently establishing hardscape land (surfaces that do not naturally absorb rain) that exacerbates storm water runoff.

The Committee on Climate Change (CCC), an independent group that advises the UK government on means to prepare for and manage climate volatility, stresses that land use planning should be factored into national policy. “Climate risks appear not to be fully incorporated into some major strategic decisions,” the organization said in a report titled Adapting to Climate Change in the UK/Progress Report 2011. “Embedding climate change more fully into decision making could reduce future adaptation costs, such as building new flood defences and maintaining existing defences, and also ensure that climate risks are appropriately balanced against other risks and benefits.”

Of course, England is cited worldwide for the construction in the 1970s and 1980s of the Thames Barrier, which prevents flooding in London during exceptionally high tides and storm surges. Used only once each year up until 1989, it was closed six times in 1990, 9 times in 1993, 6 times in 1999, 10 times in 2000, on 15 occasions in 2001, 19 times in 2003 and 11 times in 2007. The Barrier responds to ocean conditions, a different dynamic but also a function of a warming planet. This is a country that can mount heroic efforts to deal with natural forces, and perhaps similar tasks can be accomplished throughout the country.

CCC notes that water supplies are near their lower limits in some regions, and are more vulnerable to patterns of development and demographic trends. To mitigate this, they recommend several measures be taken:

• Improve water use efficiency, which can include lower-flow bath and kitchen fixtures, and the use of rainwater catchments for landscape watering and other uses. Up to 45 percent of water resource zones will be at risk of shortages by 2035 if remedial actions are not taken.

• Reduce building vulnerability to flooding by situating new development appropriately and by designing homes that can withstand flooding when it occurs.

• Design water absorption systems (bioswales and rain gardens) that naturally absorb storm water in situ that precludes flooding.

The UK Green Building Council certifies construction of residences and commercial structures according to the LEED (Leadership in Energy and Environmental Design) standards used around the world. The organization also celebrates the UK government’s Code for Sustainable homes, introduced in 2006, which calls for “zero carbon” homes by 2016. Hundreds of buildings in the country have been certified in the LEED system while many others apply these standards without applying for certification. The net result includes development of materials and techniques that often becomes standard for all construction.

To those involved in land investment, a conversion of unbuilt to built property is typically the goal and end result. Building according to LEED standards may be exactly what the market calls for, although the bulk of homes and businesses that achieve certification tend to exist at the higher end of the cost/value spectrum. These structures operate at lower energy costs, so a longer-term perspective by buyers might drive more sustainable building methods; ROIs are achieved anywhere between three and 20 years into the future, depending on technologies used.

Investors who are considering land as an alternative investment should consider also the questions of sustainability. Be sure to discuss it with experts, just as any financial decisions should be weighed with the advice of a personal financial advisor

Fraud is Driving Investors from Precious Metals to Land and Other Real Assets

Real assets – including land – are providing safer haven to investors wary of gold scams.

Gold, silver and other precious metals historically hold unique attraction. But recent experiences with fraud lead investors to other real asset investments.

The soaring price of precious metals, gold and silver in particular, has lured millions of investors from around the globe who are fatigued with poor performance of traditional investments and who regard them as a hedge against economic uncertainty. But just as a hot commodity is attractive for its ability to deliver rapid asset growth, so is it able to attract frauds and scammers.

In mid-2011, the American newspaper South Florida Sun-Sentinel reported that more than 45 companies were selling precious metals in just two counties (Broward and Palm Beach counties) in that state. Because there are no licensing or reporting requirements for that industry, it has been easy for individuals to open up telemarketing and web-based businesses there, doing business around the globe including in the UK. Many of the individuals who run these telemarketing firms have criminal records, and have subsequently been arrested for running Ponzi-scheme operations that collected investor money but never owned the gold they claimed to customers.

This is nothing new. Gold and silver have a long history of investment scams, in part because it has been universally valued for centuries, and because it is highly portable and liquid. On some levels to certain individuals, it can be a wise “safe haven” investment; its meteoric rise in price has exaggerated these notions in the past few years. Individuals who might not invest in traditional stocks or bonds might be lured by aggressive marketing into precious metals investments. Fraudsters use a variety of schemes to get money from investors without actually delivering bricks of the metal, arguing that shipping and security costs would be prohibitive, and claiming that this is the way wealthy investors own gold.

Alternative investments to gold: Real assets, such as land

Economic conditions always drive the long-run returns on all investments. While broad market factors uniformly affect the day-to-day prices of company stocks, for example, those companies’ valuations ultimately are determined by the firms’ abilities to turn a profit. But each of these has their pitfalls as well.

Investors in alternative investments – which range from hedge funds to fine art to raw land, and yes, precious metals – need to be savvy. Consider the ways to win or lose at any of them:

Hedge funds – When they were novel, hedge funds were the province of the rich to (as the name implies) hedge against losses with private, actively managed funds that are designed to deliver a positive return, regardless of market rises and falls. But because these funds are private, they are not as transparent and are thus subject to abuse and fraud. The Bernie Madoff Ponzi scheme was essentially a hedge fund.

Rarities (art, antiques, jewellery, antique cars) – The rise of wealth in China and other countries have driven up prices for many segments of the rarities markets. After all, it’s about increasing demand with a finite number of available goods. But to buy art, antiques, jewellery or cars takes expertise in each category. The new collector is easily fooled.

Land – It’s possible since 2007 to buy real estate on the exchanges through real estate investment trusts (REITs) in the UK, although the nature of the investment almost qualifies it as a traditional versus alternative investment. Compare REITs to buying strategic land, where investors select sites where they are confident a zoning change will enable development to occur. When that happens, the asset value can increase dramatically.

Individuals who are considering land or any other type of investment need to pursue it with care. All investors should work with a personal financial advisor who can independently advise clients on their full investment portfolio – which includes allocating risk among different investment types.

Would Alternative Investments Be a Good Long-Term (10+ Years) Strategy?

Should a 10-year investment strategy incorporate alternative investments?

Alternative investments that might include art, classic cars, rare diamonds or raw land have performed well in the past decade. Can the asset growth continue?

The performance losses of hedge funds in 2012 set off warning bells for many investors as they look for smart investments in 2013 and beyond. As Reuters reported in July 2012, “performance losses at many funds resulted in total industry assets shrinking.” The financial news agency quotes Hedge Fund Research, which noted the average fund dropped by 2.7 per cent in the second quarter of that year alone, a time marked by net outflows in the billions from all types of funds. Some analysts attribute this to the sheer proliferation of hedge funds, reducing their vaunted performances earlier in the nineties.

All investing involves risks and rewards, ideally in commensurate quantities. As traditional market traded securities have proved volatile and ultimately disappointing since the financial crisis of the past several years, many people have turned to alternative investments. These include hedge funds, but can include art, fine wine, classic cars and precious metals, as well as real estate and land investments, among others. Most of these have performed well against the stock market – but will they in the decade to come?

Of course, the owner of the crystal ball that holds the answer would ultimately be the richest person on earth. Lacking that, the best we can do is to look at the history of alternative investments and factors that may favour or diminish their prospects in the years to come:

• Wine – Bordeaux reds tracked by the Liv-ex Fine Wine Investables Index between 1999 and 2009 found a 138 per cent return on such vintages as Lafite Rothschild 1982. Of that variety, 12 bottles purchased for £2,613 in 2000 sold nine years later for £25,500. In other words, pick your wines wisely and you can do extremely well.

• Art and jewellery “passion” – Fine art requires an expert, as with virtually all investing, to predict which artists may perform well over time. They can prove to be spectacularly wrong: Mega-selling artist Damien Hirst, whose provocative use of dead animals and even a human skull (encrusted with diamonds) has earned him US$350 million in his relatively short career thus far,  saw some of his earlier work plummet in price by 30 per cent in 2012. Yet, London-based Emotional Assets, which promotes itself as the “convergence between collecting and investing,” is part of a category known as “passion funds,” which claim returns that best investments in stocks and bonds. KPR Capital, a Cayman Islands investment firm launched a rare diamonds fund that returns between 15 and 17 per cent per annum in 2007 and 2008.

• Classic cars – The largest classic car auctioneer in the UK, Coys, says the value of cars  – including the brands Ferrari, Mercedes Benz, Porsche and Aston Martin – has gone up since 2000 by as much as 200 per cent. That said, a firm spokesman told The Guardian that a Jaguar XJ220 that sold for £120,000 has not increased in value at all, and a Ferrari Daytona sold in 2008 for £190,000 was worth £30,000 less in 2009. Again, expertise on the part of a buyer or a buyer’s consultant is advised when looking at this type of investment.

• Raw land – Land that is poised to be rezoned – typically, from agricultural or commercial purposes to residential – offers the most likely upswing in value. Because the characteristics of land are so variable, it is difficult to cite broad investment returns from one location to another. But advice and management of the investment by seasoned property fund managers are more likely to yield a favourable return. The 7 per cent growth rate of the UK population over the past ten years while housing stock did not increase commensurately all suggest that land investments should perform well for the foreseeable future.

The characteristics of best performers in almost all alternative investments include a finite supply, attractiveness to foreign investors from developing countries (China, in particular) or increasing natural demand (e.g., the increasing UK population needing housing).

No investment should be undertaken without the counsel of a personal financial advisor.