How to Achieve Capital Growth in UK Investment Land

There are a variety of ways to earn a profit investing in UK land. It’s not all in London and it doesn't necessarily require being a landlord.

A mid-year 2014 report from the Office for National Statistics (ONS) confirmed some real estate investors’ best dreams and worst nightmares. 

The good news is that rental rates from regions outside of London and the South East – Wales, the Midlands, North East and North West in particular – are up, yielding a 6.4 per cent rise (average) since 2013. The bad news that keeps landlords awake at night is that increased prices for both undeveloped land and built properties in London and the South East, following a 20 per cent price run-up, result in lower net rental income. 

In other words, it’s more profitable to be a landlord outside of London. Which illustrates the tricky nature of achieving capital and income growth in UK real estate. But make no mistake, whether one simply trades in REITs or participates in capital growth land opportunities, there is money to be made in real estate and investing in UK land. The Census 2011 confirmed that the UK population grew at a healthy rate (a 7 per cent increase in the preceding decade) but that house building has lagged behind that by a significant amount. Approximately 200,000 new homes need to be added to the nation’s inventory per annum, but actual home construction has been less than half of that for many years. 

So with such huge demand for housing, where might an investor put his or her money? As the ONS findings illustrate, geography can make a very big difference. But the type of investment itself is likely to affect both the capital growth as well as the type of investor (i.e., the goals of the investor can vary greatly between individuals). Here are some broadly different real estate investment programmes:

• Buy, rent and wait – Whether it is farmland or an urban flat, growth will likely occur over time as you collect rent as income (or to reduce your costs of ownership). That has been the better part of the buy-in-London strategy for many, given those healthy double-digit valuation increases in recent years. But can those increases continue?

• Site assembly for resale – The strategic land investor will purchase property that is ripe for a use change – pending local planning authority approvals – then provide the infrastructural amenities (roads and utilities) necessary for homebuilding. More and more, site assembly investors then sell those properties to homebuilders, yielding a faster return on investment and allowing construction companies to determine what to build and how to make money on it. This approach allows each to assume risks they understand and are comfortable with.

• Invest in homebuilders – Per the preceding point, homebuilder stockowners or lenders can and do profit from the construction phase. 

• Real estate investment trusts (REITs) – The most liquid method for achieving capital growth gains in land is to buy shares in a REIT. Available only since 2007 in the UK, REITs are subject to general market dynamics and may be valued in ways that are unrelated to the rental or resale values of properties. 

No investor should go about taking a position in real estate and land without input from third parties. Land fund managers are skilled at outlining the risks and potential rewards of specific properties, while independent financial advisors help individuals and families identify where real estate might play a worthwhile goal in their comprehensive estate planning.

The Role of Land Fund Managers in UK Land Investment

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


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

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

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

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

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