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Changing Focus: Look towards land

Catherine Deshayes

It used to be a no-brainer - if you wanted to invest in real estate, you bought property. For a decade and more the price of UK property, whether a single bedroom apartment or a city centre mansion, rose inexorably. Property price rises outstripped inflation, the stock market, gold, commodities; just about everything...

In the last year, though, property investors have not just seen the brakes go on house price inflation, they've seen the market go into reverse. According to the Halifax, house prices in June 2008 were 6.1 per cent lower than they were a year previously.

UK average prices have now returned to the level they were last at in August 2006. Depending on which commentator you believe further drops are on the way and it could be as much as five years before house prices start to grow again.

However, there are certain fundamental factors which should not be ignored, and these point to a route which an investor should think about seriously. Land. In a nutshell, the facts are:

The UK population is growing. According to the Office of National Statistics, we grew by 349,000 people in the year to mid-2006 (the latest figures posted by ONS). That's equivalent to a city the size of Coventry. Those extra people have to live somewhere.

Population demographics are changing. We're living longer, marrying later, having fewer children, divorcing more often, leaving home earlier. The result is that, even if the population were static, we'd still need more homes.

As a result of these two factors, the Government calculates we need three million new homes by 2020.

The main opposition parties haven't disagreed. The practicalities of building those homes - and the dire state of the current credit-crunched market - may prevent UK plc from hitting that target on the nose, but it's indisputable that more homes will be built.

And there's only one place to build them: on land. At Anthony Stewart, we believe there's no reason that tomorrow's building land shouldn't be land that you own. Our role is to identify potential building land and sell it to you.

Land comes in several varieties. The first distinction is between greenfield and brownfield. Greenfield land has not previously been built on, apart from a cowshed or a barn. Brownfield land has had buildings - residential or commercial - constructed on it before.

The Government's target is for 60 per cent of new homes to be built on brownfield and 40 per cent on greenfield. Whether you choose green or brown, there are massive numbers of houses to be built on both.

Some context: if targets are hit, 1.8 million homes will be built on brownfield in the next 12 years. That's equivalent to a city almost twice the size of Birmingham. 1.2 million new homes will be built on greenfield - that's the same size as Bristol and Sheffield added together.

The next distinction is the planning status of the land. There are four basic categories:

Undesignated land; that which has not been accepted into local plans as suitable for development.

Designated land; that which has been identified for development, but where no schemes have been submitted.

Land with outline planning permission; an outline plan has been submitted and accepted.

Land with detailed planning permission; a full construction plan has been submitted and accepted.

An investor thinking about adding land to his or her portfolio should be aware that the value of land is dictated by where it is in the planning process.

Undesignated land will be cheaper than land which has begun its journey towards development. Brownfield land will, usually, be more expensive than greenfield, because of the assumption that it is more likely to get planning permission, and get it sooner.

Incidentally, brownfield land is also more expensive to hold, because it's necessary to make it safe and keep it secure.

If time and resources are not a problem, the ideal investment is to buy undesignated greenfield (relatively inexpensive) and hold it until it has detailed planning permission (extremely expensive).

That's a long-term -a decade and more - proposition that requires the investor to lobby the planning authorities and find developers and architects to progress it through planning procedures.

A shorter term proposition is to buy land at one stage, and sell when it reaches the next stage. Rewards won't be so great - although they can still be very substantial - but your involvement will be less.

Whatever option you choose, at Anthony Stewart you'll find experts who'll talk you through the choices, not just the basic ones outlined here but also questions of size of investment, geographic location, local authority housing targets, and more.

We'll even, if that's of interest to you, discuss whether you might consider investing in land outside the UK, either for a personal or a building project, or for a development scheme of your own.

One thing seems obvious. The heat might have gone out of property prices, but land will never go out fashion. Sooner or later, growing populations mean that more and more land will be needed for building.

Contact Anthony Stewart Land to discuss how you can use land as part of your alternative investment strategy.

Picture by weirdvis