Key Tips for New Housing Sector Investors in the UK

With such pressing demand for all forms of housing, there exist many ways for individuals to invest and profit. Newbies should engage professionals to avoid pitfalls.

If hedge fund firms are investing in rent-controlled social housing, is it time for all investors to look again at residential real estate in all its many forms?

Indeed, those who put their cash in real asset funds (which develop land into residential and commercial properties) find capital gains in as few as two or three years. Those are market-rate homes, generally, that target households that are quite often already on the property ladder. But firms that include England’s Cheyne Capital Management LLP, Patron Capital, a private equity firm, and Legal & General (insurance) are seeing opportunities with social properties. Characteristic of these investments is that while rents are generally set at 80 per cent of local market rents, those rental rates are pegged to inflation.

Elsewhere in the UK, individual investors who are inclined to manage the details of being a landlord find that long-term capital gains and income are still in the offing with to-let properties.

Investors with different objectives, shorter-term capital gains, join with open-ended funds such as strategic land partnerships. These follow a process that includes several benchmarks (unlike with something such as a real estate investment trust, or REITs, which are traded on the exchanges like non-real estate equities):

• Identify smart geography – These funds are managed by experienced land-conversion specialists who first find where demand for housing is greatest. If an employer requires its workforce to travel unwieldy distances to get to work, that may be the general area in which to locate a development.
• Understand the predisposition of local planning authorities – Very often the land is zoned for other uses (agriculture, for example). While some degree of resistance to development is virtually inevitable, a smart business case can be made for how new homes and populations can add to and revitalise a community. With LPA approval, the value of the land alone escalates considerably.
  
• Proceed with infrastructure construction – The initial investors will fund development of roads and utilities and related survey work.
  
• Understand the likelihood of a Community Infrastructure Levy (CIL) – Some local authorities exercise their option to impose this charge, which is intended to offset new burdens on municipal infrastructure and services. This is more typically discussed in earlier stages of development and planning authority review.
  
• Determine if selling to homebuilders is optimal – While development overall takes raw land to the construction and sale of homes, the function often splits once the infrastructure is in place. The original investors can then see their capital gains, while homebuilders pick up the job and earn their profits by building homes that will succeed in the marketplace.
  

By and large, first-time investors in any real estate scheme will benefit from working with trusted professionals. Almost any private investor should speak with an independent financial advisor to ensure a balance of risk and reward in their portfolio.

Land-To-Housing in the UK Engineered in Key Steps

What are the key issues in master planning of land-to-housing development in the UK?

Buying land, building then selling houses might seem like a simple idea, given the UK housing shortage. But even with cash, you are advised to work with professionals.

With the difficult housing shortage in the UK, it might seem that investment in housing development would be a “slam dunk” opportunity for strong real asset growth. Indeed it can be – but it is not a business for amateurs. Master planning of a land-to-housing scheme is the realm of experienced UK land investment specialists, and they must shepherd an investment through all stages of the process – which typically requires multiple years. Rare is the lone investor who works from his or her own experiences, knowledge, associations and cash.

The main questions that investor groups centre on include “where growth is strongest?,” “where the need is greatest?” and “where is appropriate land available for development?” – all within a time fame that satisfies investor expectations. To that end, the qualified land investment company will journey through the following tactical stages:

•    Trends research – The leading numbers come from the broader economy, of course. Current key drivers include the housing shortage, the uncertainties of modest economic growth and stagnation, as well as stringent lending standards. The Cameron government is trying to drive the housing market with the multibillion-Pound program known as the Funding for Lending Scheme, which is reportedly driving a modest uptick in buying.

But drilling down from the macroeconomics one finds key opportunities in specific areas where local employment growth is robust. That is where housing needs are particularly acute and local planning authorities are most amenable to zoning changes that will allow housing development.

•    Location analysis – Still, not every acre of land will accommodate housing or be available at a reasonable price. Using financial modelling as a guide, land investors will enlist site investigation teams, value appraisers and advisors on tax and legal issues. Their jobs are to collectively identify risks and returns within acceptable and optimal ranges.

While it may not be possible to establish with complete certainty that a zoning change can happen, the management team will have a fairly solid read on what the local authorities are amenable to do. If the investors’ business case is solid, all such location factors will encourage and not impede development.

•    Strategic acquisition and assembly – Rarely is a property identified by accident. Seasoned land consultants maintain proactive relationships with statutory bodies, bankers, corporate finance and commercial agents who effectively scout such locations. With sufficient investment capital, a well-managed fund is able to avoid debt financing.

Once the optimal property is identified and acquired, site assembly commences. Riveted on an expected internal rate of return (IRR), the site is developed according to plan and a schedule that matches investor expectations with homebuilder needs.

•    Exit plan – The forward sale works optimally with top-tier homebuilders. With established relationships between the investors and developers, most transactions are ideally made by private treaty (off-market transactions), with obvious cost savings in such arrangements. Many such sales are contracted long in advance, satisfying local planning permission bodies that the land will be developed relatively quickly.

The fact that the end-buyers exist long before construction commences is reassuring to land investors and those planning authorities. Under current housing shortage conditions, this could remain a driving factor for several years into the future.

Persons interested in land investment via joint investor groups should independently work with a personal financial advisor. It is important to consider the risks and timing of land development programmes in relation to one’s comprehensive portfolio.

Three Challenges with Real Asset Investments – and How to Work Around Them

Learn how to work around these three primary problems with real asset investments.

Illiquidity, a lack of expertise and the unknown dynamics of the marketplace all affect the growth of real assets. Smart investors know how to minimize their exposure.

Investors have been diversifying their portfolios with greater enthusiasm since the financial crisis of 2008. Given the failings and vulnerability of market-traded securities, they are increasingly adding real assets to their financial planning, finding asset growth in such things as precious metals, art and antiques, raw and developed land and hedge funds.

But real assets are like any class of investment: each has its challenges – which makes sense, because if there were no risk there would be little reward. For any investment to be worthwhile – even if it is daunting to the feint at heart – it must come with some vulnerabilities. The smarter investor can then pick his or her way through those challenges and figure out ways to mitigate risks.

One of the best illustrations of this is land investing. Every property, particularly land tracts that are undeveloped, has a truly unique set of variables while being subject to national economics and even to some extent the global economy. Consider the three primary challenges to land investing – illiquidity, asset knowledge and marketplace dynamics – and some ways that these investment risks can be minimized or even eliminated:

1. Illiquidity – There are two conflicting theoretical arguments about economics. One is that, essentially, everything is for sale, and that every product has a buyer. But in fact, there is friction in all markets that slow things down and prevent buyers and sellers from doing neat, instant transactions. Market-traded securities are perhaps the best examples of very liquid assets, yet trading halts and high bid-ask spreads can slow even those down.
   
   Greater illiquidity happens with real assets such as land, of course. Land investors sometimes anticipate it will take several years for the asset to reach an adequate value increase before attempting to sell it, and then the legal matters relating to the transaction generally takes months to execute. Rare antiques, art, precious metals and other real assets have similar challenges in that the transactions involve certain factors that slow the actual sale of the asset.
2. Asset knowledge – Art dealers make a handsome income for a reason: they understand art and art values. The same can be said about antique cars and other fine collectibles. Each requires deep knowledge of the asset class itself, as well as the current dynamics that affect near- and long-term values.
   
   Using the same example of raw land, knowledge of the investment and all factors affecting it require expertise on the part of the investor. To this point, it should be noted that fraudulent schemes have promoted worthless land to unsuspecting investors. Anyone investing in land should have skills in site evaluation and planning, and be able to gauge municipal planning authorities’ propensity to rezone land for alternative uses (typically, authorizing it for residential or commercial development). The land investment expert will also be able to judge how much time will be required to turn raw land into something of greater value – enabling investors to understand how long they must wait to see a return on their investments.
3. Dynamics affecting value – To see where world events can affect the price of a real asset look no further than what has happened lately to the price of gold. Between October 2012 and February 2013, prices tumbled from a high of $1800 (USD) per ounce to $1600 per ounce – after a 481 percent increase from 2002, when it traded for about $275 per ounce, the biggest gains coming after the 2008 global financial crisis.
   
   Historically, gold prices have mirrored the ups and downs of interest rates, but other factors have played a role in the stratospheric increase of gold in the past decade. These include a slowing global economy, sovereign debt problems worldwide and the downgrade of U.S. debt, as well as fears tied to deficit spending by governments.
   
   Land investment in the UK is currently driven by a distinct housing shortage. While it remains difficult for many young people to get adequate financing, that may ease in the near future. Also, more housing may be built for the rental market, which has grown considerably in recent years. The dynamic is a continuing population growth rate in England and Wales (7 percent in the decade preceding the 2011 census) juxtaposed against a woefully inadequate amount of building to replenish the housing stock. Also, the economics of one town may differ greatly from another, with pockets of growth tied to the fortunes of one or two industries.

The trick is to predict with confidence what the dynamics will be and how it might affect real asset investments. E.g., with built property, commercial and residential, it’s vacancy rates. With undeveloped property, it’s the demand for housing and the political inclination toward encouraging the development of land.

With each of these problems, the seasoned investor – or their investment advisors – will fare best when they apply deep knowledge to the specific type of asset. And just as no two assets are exactly alike, so too are the objectives and portfolios of one investor to the next.

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

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

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

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

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

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

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

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

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

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

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

Site Development No Longer the Job of UK Homebuilders

Homebuilders used to do all the work: Buy land, achieve a use change and build roads, then build and sell the homes. But now land investors do that -- here’s why.

The good news is that homebuilding in the UK in the first quarter of 2013 was at its highest in five years. The Chancellor of the Exchequer, George Osborne, is given partial credit for providing equity loans up to 20 per cent of the value of newly built homes. This “Help to Buy” program is available to purchase homes valued at or below £600,000, and can be accessed by both first-time buyers and people who have previously owned property.

It only makes sense, after all. With a growing population (up 7 per cent from 2001 through 2011, according to Census 2011 data) concurrent with the economic downturn, there has been a dearth of new home construction that has affected a generation of would-be homebuyers. Credit access for buyers has blocked many from buying, creating pent-up demand.

Another problem that has confronted homebuilders has been diminishing margins. The business has traditionally been capital intensive: they would need to acquire land sites that were appropriately zoned for housing (or slated to change, per the local planning authority), develop the streets and utilities infrastructure, then find buyers for homes they would build. The amount of upfront cash and the time frame over which all development took place forced significant carrying costs and risks on the homebuilder.

Now, however, the business model has shifted somewhat. Land investors are taking on the risks and rewards of site acquisition, zoning changes and site preparation, adding streets and public utility services, as needed. Once that is done, homebuilders buy the land, build houses and then sell them.

Why does this arrangement work? It’s about doing what one does best. Land investors and site development specialists bring a certain expertise and resources – knowledge on how to strategically acquire and prepare sites, which a homebuilder may lack. Subsequently homebuilders, who are expert in constructing the type of housing that the market needs and wants, then focus their skills there. Capital is invested in each phase, but the risks are better understood and the time frames shortened (which also mitigates risk).

Implicit in all of this of course is the complexity of each task. The business of site preparation isn’t for the dilettante. This is why land investors are increasingly turning to specialists who know the process and the pitfalls. Land investment groups are generally attuned to the government’s housing delivery initiatives and localism agendas. They are able to mitigate planning risk such that they can target per annum returns in the double digits.

In the end, all players in the equation should be able to thrive in the months and years ahead. The inexorable increase in population is creating ever-growing demand for housing, which is unlikely to be satiated anytime soon.

Individuals who consider alternative investments and who plan to invest in land for development into housing are encouraged to work with an independent financial advisor. Land investment comes with its own set of risks that specialists understand; how the risk fits individual portfolios needs to be evaluated one individual at a time.

Advisory: None of the information contained on these pages constitutes personal recommendations or advice. If you are unsure about the meaning of any information provided on this website, then please consult your financial or other professional advisor.

New UK Housing Sector Investor Advice

As institutional investors venture into the rental market after a half-decade’s absence, private investors are considering how to-let housing might work for them, too.

The news in March 2013 that Prudential Property Investment Management Division UK was growing an investment residential property portfolio signalled an important and interesting shift in both the housing and investment sectors. “The Pru” spent £140 million to purchase 500 homes from Berkeley Group, a national homebuilder; this was the single largest transaction by an institutional investor in to-let housing since the financial crisis of 2008.

Other institutional investors are being encouraged to similarly invest in the rental market. Chancellor George Osborne announced earlier in 2013 that they will increase the budget to fund build-to-let property from £200 million to £1 billion. Reportedly, Legal & General and Aviva are investigating these opportunities.

The market demand for housing of all kind is certainly still there. The paucity of building – only 110,000 homes were built in 2012, while the UK population growth and replacement of deteriorated housing demands that 240,000 homes be built every year – is well understood. Younger buyers in particular are finding it difficult to summon the deposits required to make a purchase, and banks were stringent in their lending standards during the recession.

Consequently, private investors are now looking at rental housing for capital growth investments, and many financial advisors believe doing so can complement a diversified investment portfolio.

For the individual, there are two ways to go about this: either on a property-by-property basis, or in joining with property fund partners, such as with raw land purchases for development. A third method is a real estate investment trust (REIT), however most of those focus on the commercial market (one REIT was launched in 2013 that focuses on student accommodations in London and two others are reportedly in formation).

The “Money” section of the Daily Mail online provided a list of tips for individual to-let housing investors, emphasizing how this is far from a passive investment. Among the advice provided were the following:

Know the market: Rents will range widely depending on neighbourhoods, features and amenities. Investigate this relative to your ownership expenses. Surprisingly, the best returns do not necessarily come from the most expensive properties – a survey of 50,000 rental properties found better profits in Wales (fetching a 6.7% yield, calculating rent as a percentage of property price), the North and the Midlands, as compared to Central London and the South East.

Know the trends: Figure out where people, particularly younger working adults, are moving. Access to good transport and well-rated schools each increase the value.

Mortgages and rent equations: Be a savvy mortgage shopper, opting to use a broker if you prefer. But aim to get a monthly mortgage payment that is about 80% of what the likely rent will be.

Don’t be overzealous: Most built properties have been properly valuated and will not see the same run-up in value as it happened during the bubble period of ten years ago. Expect a slow value increase in properties, with perhaps your best asset growth coming from improvements you make to the property. This is where you can negotiate the best price and achieve an increase in value by doing the work your self or hiring professionals within a set budget.

Do more/make more: While you can contract out almost all services required of a landlord, the landlords who do some or all of the work required will save more and perhaps have better control of the investment overall. A rental agent and maintenance people can be hired, but if you are willing to spend evenings and weekends showing, painting and repairing a property feature, you’ll keep more of the rent money for yourself.

The alternative, something such as a land investment fund, is a different engagement altogether. With an investment of £10,000 or more, you would be joining with other investors, who in turn hire land development specialists (among the biggest upside in real estate today is in getting land use designation changes for raw properties in strategic locations). It’s a much more passive engagement, even though the actual transformation of land to housing is tracked through the course of the investment.

Whether an investor chooses to get involved in a property, to invest through market-driving REITs or join in a capital growth investment fund that specialises in land, it should be done with a holistic look at the overall portfolio. The counsel of an independent financial advisor is strongly recommended.

Land Planning Tied to Multiple Local Economic Factors

Local planning authorities (LPAs) deal with more than just housing zone changes. New homes are one component of environmental, economic and life-quality considerations.
It’s a classic chicken-and-egg question. What comes first, a resident population of workers for companies looking to establish workplaces in a particular locale – or is it the other way around, when employers are the draw to workers who move to be near them?

It happens in both ways, of course. But central to both perspectives is the intrinsic relationship between populations and workplaces. Not only do employers need people with certain skill sets, but they also require a large-enough population from which to draw appropriate workers. But over time, people will relocate to areas where the jobs are most plentiful.

Government policy recognises this. The Housing Grants, Construction and Regeneration Act 1996 addressed the matter of regeneration and development as a means of economic stimulus in select regions. Among the legislation’s priorities are to provide or improve upon housing as well as social and recreational facilities “for the purpose of encouraging people to live or work in the area,” as described in the act.

Many other factors affect where both workplaces and homes are built, of course. And as the UK struggles to revive its economy while simultaneously addressing a housing shortage, all such factors form a constellation. These factors run the gamut from the general state of the economy (local and global), currency strength, government interventions and interest rates.

Note that housing – the construction phase of new homes in particular – is often discussed as a short-term economic stimulus. We tend to discuss the economic value of homes purely in the activity around construction and furnishing a home. Less is said about the broader economic benefits, such as providing residences for workers who are essential to local employers as well as their role as consumers of products and services in the area.

Local planning authorities (LPAs), newly empowered with the Localism Act, are at the core of land use designation decisions. Much is said about the environmental sustainability goals of LPAs, which are, of course, of great importance. Some expect that a focus on the preservation of greenbelt and agricultural lands might then be the ultimate priority, but in fact the National Planning Policy Framework as set forth in 2005 allows that local economics are part of sustainability as well. Preceding this, the Brundtland Commission said back in 1987, “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Planninghelp.org.uk, which champions planning for rural areas, translates this into at least three directives:

• The economics of planning – Ensure that “sufficient land of the right type, and in the right places, is available to allow businesses to set up and grow, and to be supported by infrastructure such as roads and railways.”

• The social role of planning – Housing, leisure, recreation, retail and schools make for strong, vibrant and healthy communities.

• The environment’s role – Protection and enhancement of landscapes and wildlife, as well as historic and archaeological structures, are essential to clean water, energy and mineral access, as well as providing cultural and tourism assets.?

So while new home construction is an important short-term stimulus to local economies, it really is part of a matrix of considerations and, well planned, part of the broad sustainability of a region as well.

As the UK struggles with a shortage of housing, each of these considerations should help guide a renewed building phase that should materialise in the coming months and years. Already, investors from the UK, the United States and elsewhere are financing projects that will add to the country’s housing inventory.

With such an obvious degree of pent-up demand, strategic land investors and homebuilders are identifying good opportunities. Individual investors investigating alternative investments must, of course, examine the risk profile of development in light of all these factors, as well as take counsel from an independent financial advisor on their overall portfolio allocation.

Advisory: None of the information contained on these pages constitutes personal recommendations or advice. If you are unsure about the meaning of any information provided on this website, then please consult your financial or other professional advisor.

A Diversified Investment Portfolio Might Include Raw Land

In a world of complicated and often obfuscated investments, raw land is relatively simple and answers a strong market need: we need more houses in the UK.

Achieving the proper balance in an investment portfolio is perhaps the second most important objective to the investor – the first being maximized returns in all components of that portfolio, quarter upon quarter, year after year.

Investment advisors who deal in traditional market-traded securities will speak of an ideal 40-60 mix of stocks and bonds, respectively, with subdivisions for higher-risk/higher-returns and lower-risk/lower-returns asset allocations. But since disappointment and volatility have characterized the markets in the wake of the global financial crisis of 2008, millions of investors have ventured into alternative investments that include real estate (real estate investment trusts, REITs, plus the actual ownership of built property and raw land), rarities (art, antiques, coins, wine, vintage cars), hedge funds, and the like.

With this new awareness and preference for alternative investments has been a migration away from that 60-40 stocks-bonds mix. But what is the neat new formula to serve as one’s guide?

The answer is as varied as perhaps the number of different investors. Age and family situations will always be factors that can alter the mix, of course. But what many investment advisors are saying is that the investor might fare best when they understand the intrinsic nature of the investment, perhaps even get involved with it on some level. The vintage car buyer should not only think of those four wheels as an asset but rather as an irreplaceable prize of meaningful provenance, for example.

The same might be said for investors in land. The more one knows about the variables surrounding land, the more confidence he or she might have in the investment. Now to be clear, the individual who is new to land investing is strongly advised to work with professionals.  Strategic land professionals know how to take raw acreage through planning authority approvals to construction and to the ultimate (and profitable) sale of the property. And on its merits, land investing has much to offer:

1. Land is transparent. As compared to such exotic and opaque investments as derivatives, the value of land in its current condition is fairly easy to determine. A bit harder to project is value growth, the dynamics of which vary from location to location. But even with that, there are solid models for projecting how those dynamics can affect future value.
2. Finite supply and pronounced demand. The shortage of housing in the UK is well reported and grows every day, as the population continues its increase while only half as much building is completed relative to the need. While the dearth of lower-income and social housing is often discussed, the affluent are also battling to find homes as well (check the pricing of London housing, which have more than recovered to pre-2007 levels).
3. Buy-to-let vs. buy-to-build? The investor class is finding at least two options in real estate. One is to purchase housing flat by flat or building by building, which involves active management of properties with all the risks inherent in human occupation; a variation on this of course are REITs, the returns on which since becoming part of the UK investment landscape have been disappointing. That said, rental properties are doing well as the housing crisis is characterized by the supply-demand equation and, consequently, rapidly rising rental rates. But land purchased for the purpose of building new housing and commercial structures can deliver high yields but with fewer of the hassles of rental property.
4. Growth. While it may be investment malpractice to predict exceptionally high returns on land investments (raw properties, including greenfield and brownfield tracts), there are many examples of that happening. And note the current scenario fits a historical pattern: some of the greatest wealth of individuals has been achieved by way of land ownership and investment.

Of course, the only advisable means by which one allocates their investments in anything is through the counsel of a personal financial advisor.

Advisory: None of the information contained on these pages constitutes personal recommendations or advice. If you are unsure about the meaning of any information provided on this website, then please consult your financial or other professional advisor.

Understanding Property Funds

A property fund allows investors to participate in real estate opportunities with the added benefit of diversification.

With greater awareness of the opportunities present in the current real estate market, many investors are looking carefully at property funds. The volatility of traditional investments, especially publicly traded stocks and bonds, drives interest and investment in various forms of real estate and property investment instruments.

A property fund allows the investor to diversify – and minimise risk – by buying multiple properties that are appropriately vetted (before acquisition) and managed (after acquisition) by skilled property fund managers. This differs from individual investors who are sole owners of single or multiple parcels of land. The lone investor may face headwinds from external factors, such as change-of-use resistance or an adverse change in local economics, whereas a property fund will strive to avoid such situations. While the nature of land will always be subject to externalities, the diversified nature of property funds leaves the investor with proportionately less exposure.

An alternative to a property fund is a REIT (real estate investment trust) fund; however, the two have key differences. A REIT is more liquid – an advantage to some investors and a disadvantage to others. But this also tends to subject the investor to market volatility, something avoided by a trust fund. REIT funds incur management fees that are generally greater than those found with property funds.

Understanding Joint Venture Investments

There are many advantages to joint venture investments, including how the partners can bring experts together with a pool of investors.

Joint venture investments are vitally important to many types of enterprises: For new or revitalising companies, in technological research, and to businesses that work across national borders (where the joint venture partners bring financing and local expertise together). Joint ventures in real estate are a special category because of the nature of land development.

To the individual investor, a joint venture investment in land provides several advantages. A lone investor would bear all the risks – and rewards – of real estate development. But this can be too large an exposure for many individual land investors. The advantage of a joint venture investment in land is that individual investors can participate in larger acquisitions with better knowledge, expert management and economies of scale.

The nature of land investing raises many questions. Is it ripe for development? Are there barriers to development, such as local zoning or economic uncertainty? What are the opportunities that are not readily apparent to investors who are geographically removed from a particular parcel? In a joint real estate venture, appropriate expertise and analytical tools can help to answer these questions.

In a recovering economy, land located in favourable regions, counties and countries offers promise for capital growth through development as well as from market forces. Joint venture investors have already begun to seize the opportunity.

Property Fund Partners and their Role in Land Investment

The investor looking to take advantage of real estate opportunities is wise to find property fund partners to manage his or her risk.

The uncertainties and risks associated with all investments – publicly traded stocks and bonds as well as alternative investments such as hedge funds and real assets (real estate, for example) – require all investors to work with trusted and competent advisors. Nowhere is this more important than when investing in land. Variability between real estate choices compels the investor in most instances to work with property fund partners who know how to mitigate risk and maximise returns. These partners will work with its own in-house team of experts as well as strategic partners across the market.

The confident lone investor may be someone with an education and career experience in land and land development. But the vast majority of investors choose to work through a diversified portfolio fund, where the smart acquisition and management of multiple parcels of property limit their exposure. The fund or funds they select are only as strong as the expertise and skills of the land fund managers.

It is those skills that enable the property fund partners to succeed for their client-fund participants. They identify where the maximum asset returns can be found and what optimal external factors are present. Externalities include local development and planning schemes, trends within a local economy and competing properties in the district. Fund managers also assemble a portfolio of properties with a variety of characteristics that will take advantage of a variety of market conditions – again, to mitigate exposure.

Add to this the fact that investors have their own set of tax strategies that can be affected by land investing and it's clear that property fund partners play a vital role in creating a holistically profitable asset for the investor.

What Are the Risks of Real Assets as an Investment?

All investments, including property funds and other real assets, carry risk.

Following years of poor performance by market-traded securities, investors are choosing real assets as an alternative. But all investments are subject to risk.

Battered by an economic downturn over several years, investors in the United Kingdom are, like their counterparts in the European Union and the United States, looking for investments that maximise asset growth. Traditional market-traded securities (stocks and bonds) in particular have underperformed, leading investors to look at alternative investments.

Alternative investments range from the opaque (short only funds, ultra short funds, absolute return funds, market neutral funds, hedge funds) to the transparent, such as real estate investment trusts (REITs), private equity and venture capital. A subset of alternative funds includes real assets, including land, developed real estate, rarities (art, antiques, stamps, fine wine, coins, antique cars), precious metals (gold, silver, platinum, palladium) commodities (energy sector fossil fuels, plus agricultural goods such as wheat and corn) and even renewable energy products (biofuel crops, solar panels and wind turbines).

This last category, real assets, holds great interest after the disappointments of exotic and complicated investments such as derivative assets. Art can be appreciated with the eyes, much like antiques. Fine wine can be held, traded or even consumed (a reckless investment act, but sometimes a celebratory gesture of something of even greater significance). Land can be traversed, formed, beautified and turned into human habitat. Precious metals are sometimes adornment, or held in bulk in safety vaults. We feel good when we invest in energy to power industry, perhaps even more so when it is from renewable and non-polluting sources. An antique car might be driven for very special occasions – carefully and responsibly.

But real assets such as these carry their own risks. While insurable, rarities such as art and antiques can be utterly eliminated by fire, natural disaster or theft. Commodities are subject to market forces that can, under some circumstances, cut value to a net loss.

Land investment and land development are also subject to external forces. But professional advisors control variables in strategic land investments with methods that include the following:

1.    Choose land that will likely appreciate – Experienced land investors (many investors join small-group funds with professional advisors) search for property that is ripe for development (usually for housing) to accommodate the U.K.’s growing population. Such properties are typically slated to become part of a town plan. The investors – who at a minimum invest £10,000 – do not blithely wait for the planning process to play out but actively ensure their land investment progresses on a timely basis.

2.    Infrastructure investment (where appropriate) – Some land investments benefit from the building of roads, the installation of utilities and water and sewage removal. This makes the property ready to build for construction firms.

3.    Expertly time the land sale – All strategic land development follows a pre-set timeline. This is important to the investor, as he or she can know when to expect a distribution on the eventual sale profit.

Still, even well managed property funds investments come with unknown variables. Would-be investors who want to learn more about strategic land should consult with an independent and qualified personal financial advisor.

Understanding Capital Growth Funds

Funds tied to capital such as land – and not the stock market – are more affected by specific local conditions and benefit from location diversification.

A capital growth fund is any portfolio of investments that is assembled with the intent to generate an investment return. Typically, those returns are reinvested.

Of course, achieving capital growth – to sell at a price that is higher than the price paid on the investment – is a goal, not a guarantee. But the chances of success are much enhanced by working with professional capital growth professionals who truly know the assets that are being invested in. The collection of investments within the fund and the market conditions that affect them determine whether a capital growth fund lives up to its name.

Capital growth funds based in real estate are different from, say, those tied to the stock market. Fund managers look at the distinct and unique combinations of land tracts to maximise certain factors, including local market conditions that would increase or decrease the value of each particular piece of property. A balanced capital growth fund in real estate would also be diverse across many geographical jurisdictions such as counties, as a local political structure can influence how land is used and zoned.

Also, diversification in the likely end use of the land (residential versus commercial, for example) can help the capital growth funds investor hedge against disruptions in any particular sector. The expertise of capital growth fund managers in land acquisition and land planning is therefore essential for developing valuable real estate-based capital growth funds. Experienced fund managers focus on the most profitable part of the land development process: acquiring sites that have been identified to come forward for residential or mixed-use development but do not yet have detailed plans or permissions. Lucent then works with its own in-house team of specialists augmented by a select group of advisors to produce sustainable "development-ready" land sites before selling to house builders or other development companies.

Alternative Investments: Minimising Risk in Unknowns

Can the Risks Inherent in Alternative Investments Be Minimised?

The nature of alternative investments such as land makes it difficult to quantify risk. You can overcome the unknowns by understanding the investment opportunity.

The fundamental strategies for investing – minimising risk while maximising returns – are almost universally held and apply to nearly every type of investment. But the uncertain nature of most asset classes in the past few years has radically altered how investors have gone about achieving this. So what is the state of affairs now?

A global survey compiled in 2012 by Towers Watson in conjunction with the Financial Times found that, in general terms, alternative investments are attracting more investment than in the past ("alternative investments" is a term typically applied to managed futures, hedge funds, private equity, exchange funds and real estate). The report attributes a perceived instability in the global financial system, as it affects stocks and bonds, as the reason more assets are being allocated to alternative investments and investment funds.

The leading asset class within the broader category of alternative investments is real estate. According to the report, about 35 % of funds being invested outside stocks and bonds are allocated to real estate, followed by private equity (22%) and hedge funds (21%). Infrastructure and commodities draw about 3% each of the total of about $3 trillion (£1.9 trillion).

The fact that the largest portion of investments is drawn to land suggests that the return will be maximised while risk is minimised. What is it about land that makes this happen? Several factors are in play:

• Natural population increase ultimately leads to land value appreciation. Particularly in the developed world, the matter of supply and demand is the ultimate determining factor. According to the Towers Watson report, “The global economic crisis has spurred the vast majority of investors – both private and institutional – to readdress their asset allocation strategies … [such that they] align their portfolios with basic trends in underlying fundamentals such as population growth and economic expansion in emerging economies.” In countries with a net increase in population from immigration and a high birth rate, that becomes doubly so.

• Land has strategic locations. As industries and local economies shift, so too does the value of land. When a region attracts one or several companies, an employment base and a need for housing will both rise in the vicinity.

• Land use can be managed to reduce risk. When public officials can be shown the value of rezoning an area, this can significantly add to the value of the land therein. Land investment managers with land-planning skills, land development acumen and land site assembly analytical tools are the best equipped for containing land investment risk – and increasing its reward.

All land investment in the UK comes with some risk, but the most strategic land development organisations are satisfying individual and institutional investors who may be unhappy with their more traditional alternatives. For more information, speak with your personal financial consultant.

Reasons Why the Time is Right for Land Investments

Now May Be the Golden Moment for UK Land Investments

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

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

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

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

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

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

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

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

Does Capital Growth in Strategic Land Require Building Structures?

Learn how building structures can affect capital growth in land.

Strategic land investments are affected by many factors, primarily in adapting to the strongest market needs in the present. Existing buildings can diminish value.

The Daily Telegraph reported in October 2012 that a jump of 1.3 percent in house prices at the end of the summer was more an anomaly than hopeful trend. The article quoted Robert Gardner, chief economist at Nationwide (which issues monthly house price surveys) as saying “we should never read too much into one month’s data…the housing market is firmly in the doldrums, although the national average does mask significant regional differences. That said, in parts of London where there is a shortage of decent family homes for sale, there is still significant competition from buyers and prices are holding quite well.”

Gardner’s comments did not address specific properties outside London, but investors looking for capital growth in land understand there are opportunities elsewhere. The seven percent increase in population across the U.K., as identified in the 2011 Census, is a strong indication that new homes need to be built, particularly in towns where the local employment base is expanding.

But the matter of existing homes and buildings raises important points of discussion for the land investor. Typically, land investment involves raw properties, perhaps zoned for agricultural purposes but where the local authorities are predisposed to a zoning change. The astute investor – increasingly, land investors join together in joint partnerships that include an advisor with extensive experience in land capital growth – typically looks for undeveloped land.

The reason for this is simple: existing structures and the community infrastructure built for previous purposes may not serve current-market needs. There is less growth potential for the investor if, for example, 30-year-old multi-unit structures occupy the property because those buildings might require expensive renovation or demolition. With undeveloped land, the buildings, street configurations and utilities can be designed to meet modern needs.

This does not mean that historical buildings necessarily have to be demolished. Some developers are able to save barns and other aged structures to provide a development with character. For example, the Reigate & Banstead Borough Local Plan Policy on redundant rural buildings (in conjunction with the Department of the Environment Planning Policy Guidance Notes’ PPG7, “The Countryside and the Rural Economy” and PPG2 “Green Belts”) advises that barns of specified vintage and characteristics be preserved, preferably for industrial or commercial use. In such a case, it is entirely possible that a structure could be woven in as an integral economic component of the new community built around it.

As the economist Gardner stated, there are specific regions where demand defies the broader market downturn. In such cases, the capital growth-minded land investor is wise to work with experienced strategic land investment advisors who understand where opportunities exist and where they do not. The investor should also consult with an independent financial advisor to discuss where land investments might fit into an overall personal financial plan.

Do All Joint Venture Participants Bring Expertise to the Investment?

Expertise is critical to joint venture investments – from any participant.

Joint venture land development investors are largely involved to earn a favourable return on their capital. Most investments benefit from third party expertise.

Joint venture partnerships (JVP) between multinational companies and in-market owners of capital, brands or knowledge, are a proven successful formula. This is particularly evident in the global economy. The McDonald’s Corporation’s expansion to scores of countries, many in the developing world, has been monumentally successful because the company typically works with an investor-manager in each of those markets. The restaurant company understands how to effectively run its establishments, while the JVP ensures that customers, employees and regulatory agencies are working with locals who understand their region’s needs and interests.

Joint venture property funds can follow a similar model, but not all investors necessarily bring land expertise to the table. The nature of buying, repurposing (through the planning process) and reselling property absolutely requires that the team has expertise in those particular tasks. Indeed, successful independent real estate investors can amass significant wealth when they have these skills themselves or within their staff. But many joint venture participants only bring capital, not land-specific expertise, to the investment. The investment and the task to grow capital are left to one or more, but not all, parties in the investment.

Whether or not this is an optimally beneficial arrangement is subject to circumstance.

Consider two different joint venture land development investment scenarios:

Scenario 1: Some but not all investors are the land specialists. A degree of trust needs to be established between all parties when some investors lack knowledge on how to make strategic land investments.

Scenario 2: An independent land investment advisor works collectively with joint venture participants. Because such advisors attract investors over time, they need to establish a track record that demonstrates their ability to maximise their returns to investors’ capital. That track record over previous investments is how they establish the trust that investors place in them to grow their assets.

The points of expertise required for strategic land investments are as follows:

1. Acquisition of land – Only properties that show strong and probable asset growth potential are considered. Sometimes the land tracts are held by several owners, which consequently requires acquisition negotiations on several fronts (not necessarily an easy task).

2. Site assembly – Achieve granting of outline planning consent by the local authorities, clearing the way for repurposing and building on that land. While this is typically understood in advance of the acquisition, the process needs to be managed carefully, working through the proper channels (e.g., submitting an optimal design) to a successful outcome.

3. Sale of the property – The moment at which the investment can provide a return on investment – according to the original joint venture asset growth goals – is when the investors benefit from their advisors’ expertise.

As should be clear, individuals wishing to learn more about a joint venture in strategic land should discuss their specific and overall investment goals with an independent, qualified personal financial advisor.

Where Does Strategic Land Rank Among Alternative Investments?

Alternative investments such as strategic land should be comparatively evaluated.

While fraught with apples-to-oranges comparisons, would-be property funds investors should consider all alternative investments.

The Reuters news agency reported in October 2012 that the lustre of hedge funds is diminished. The reason, according to one prominent financial advisor cited in the story, is that hedge funds basically became too popular. They attracted institutional investors that have effectively reduced risk taking. While hedge funds gain on market inefficiencies, those inefficiencies are effectively “ironed out” by the proliferation of participants in this type of asset – ironically reducing the net return from the funds.

The primary reason investors went to hedge funds in droves over the last several years is because of the poor returns they were finding in traditional market-traded stocks and bonds. So what about other alternative investments? Do land, developed real estate, precious metals, art and antiques (including antique cars and rare coins), commodities, energy or natural resources yield managed risk and above-market returns? Consider the news on each (as of the third quarter 2012):

• Gold – After rocketing to historic highs in mid-2011, the only investors who are assured a good return on their investments are those who purchased the precious metal in 2008 or earlier, according to the head of a private banking firm.

• REITs – Real estate investment trusts are tied to large portfolios of developed or developing properties, primarily commercial buildings. The natural fortunes of REITs rise and fall with the markets, tied both to vacancy rates (which roughly correlate with the market) and the general performance of stocks and bonds.

• Undeveloped land – Strategic land investments, approached as property funds, allow small groups of investors to work with a land development advisor to convert unbuilt tracts to more productive uses. With the UK population increase (7 percent in the last decade) and housing shortage, market demand for housing should buoy asset growth in this category.

• Antiques, rare coins, art and antique cars – For the aficionado, rarities such as these can be an enjoyable avocation as well as a good investment – spectacularly good in some instances. Emerging wealth in China and India is placing upward pressure on the finite supply of rarities. But each investment must be made with expertise. Whole movies have been produced around art heists, rare book forgeries and falsified provenances of Stradivarius violins, telling the sad tales of rarities investments gone wrong.

• Agricultural commodities – Climate change is a significant factor relative to agriculture, with drought plaguing some areas and excess rain, shortened growing seasons and premature spring hitting others. FarmingUK.com reports, “The poor [2012] UK harvest compounds a series of challenging weather events for farmers around the world, most notably drought in North America. The resulting tight supplies of many feed grains have driven up the prices of agricultural commodities around the world. These UK harvest results will do little to alleviate the global dynamics of commodity prices, with the prospect of relatively high commodity levels through to 2013." What is bad for consumers may be better for investors, but the inherent uncertainty of weather is unnerving to many investors.

• Energy – Volatility defines the world price of petroleum, and uncertainty has led key players in the offshore wind industry (General Electric, Doosan Power Systems and Vestas) to shelve plans in 2012 to build turbine capabilities in the UK. “Renewable energy in particular needs the policies that are investment grade,” says Dr. Rob Gross, director of the Imperial College Centre for Energy Policy and Technology, who argues that carbon pricing will not be sufficient to drive demand for renewable energy development. Political factors cloud one’s vision as to what might happen next.

Alternative investments can provide significant asset growth, but clearly one needs to approach them with expertise. Every investor’s goals, timing and wherewithal varies, therefore it makes sense to weigh personal variables with the advice of a personal financial counsellor.