Avoid UK Land Investment Scams

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

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

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

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

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

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

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

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

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

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

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

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

The Implications of Institutional Investors in Rented UK Housing

Institutional investors now back in UK residential rental housing: What does it mean?

Investors such as Prudential are now buying to-let residential housing in England. After decades of absence, the housing crisis seems to be the driver.

The quadrupling in the size of the private rented housing market in the UK over the past decade reached a watershed moment in 2013: institutional investors are now getting back into quality rental housing ownership. Prudential PLC ended a 30-year absence from investing its assets in the sector with the purchase of 500 newly constructed homes, promising to increase its portfolio there in the future.

Since the 1970s and 1980s, individual landlords with small portfolios largely dominated the landscape in private to-let housing. Indeed, the National Landlords Association says that a growing proportion of private landlords – currently, 73 per cent – rent only at market-rate, not to recipients of local housing allowances. Some of this can be attributed to the strength of the rental market, as more working people can afford to pay rent but are unable to buy their residences.

The introduction of the 1988 Housing Act changed the scenario for private landlords, as they were enabled to charge market rates for housing. About two-thirds of residential rental properties are held in small (one or more units) portfolios owned by individuals. The remaining one-third is held by companies that, for the most part, are real estate firms.

But the long-term cash flows of rental property look increasingly attractive to institutions with money to invest. Analysts note that residential compares well to commercial properties, where deep-pocketed investors have been concentrating their assets in recent decades. Additionally, development of raw land sometimes focuses on the rental market already, where the market demands it. Residential properties beat commercial in both total returns and risk adjusted returns, in addition to outperforming equity and gilt markets. The total annual return for to-let residential investments is 9.78 per cent (vs. 5 per cent for commercial), according to analyst M&G Real Estate (formerly known as PRUPIM).

One attractive aspect of the residential rental market is that it is more inelastic to economic downturns than with commercial. In an economic trough, commercial spaces empty as businesses shrink or close, but housing is more resilient as even unemployed people find ways to stay in their homes if at all possible. Elsewhere in the Eurozone – Switzerland and Germany in particular – a robust institutional rental market has always been healthy.

But perhaps the biggest driver in the UK rental market is a simple acceptance that ownership is beyond the reach of much of the country’s burgeoning population. With 7 per cent growth over the past decade (Census 2011), the country’s homebuilders are only constructing half as many homes as needed. The tight supply, as well as stringent lending and unattainable deposit requirements, have made renting the only rational option.

Strategic land partnerships and homebuilders are responding to this shift by building for to-let owners. Indeed, land development specialists who assemble investors (often operating as capital growth partners) are now speaking to local planning authorities about the rental option. Where employers need people living nearby, rental housing may be the answer – particularly if workers need to be flexible to moving. With companies such as Prudential entering the market, competition for good properties may heat up.

Interested investors in any type of housing need to go about it with due caution. Many choose to invest via land investment funds that are managed by a strong team of strategic land investment advisors. Speak with an independent financial advisor to examine where land and property investing fits into your overall portfolio risk profile.

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.