Property Inspector: How to invest in land in 10 minutes
TheMoveChannel.com’s Property Inspector, taking a closer look at global real estate each month.
In April, a building plot in the Cayman Islands took the highest number of enquiries on TheMoveChannel.com. In fact, three out of the 10 most popular listings were land investments, as investors seemed to turn away from property in search of more stable investments. With interest in land on the up, this month’s podcast explores the pros and pitfalls of land. Is the asset the answer to a post-crisis global economy? What is the best investment strategy?
The Inspector tracks down Ray Withers, CEO of investment agency Property Frontiers, to get some answers.
What kind of land opportunities are out there?
There are two types of land we tend to get involved with: building plots and agricultural. You buy to either hold and sell on at capital appreciation or your build on it yourself, or there’s agricultural, which is more of a yield play, where you get a stable yield over typically a relatively medium to long term, 10 to 15 year period where the crop grows and you get a percentage of the harvest when it comes through.
There’s the perception of land as being a more stable asset than property. Is that true?
The reason we’ve been investing in building plots is it suits a lot of investors from a capital appreciation point of view. Ultimately, the value accrues on the land vs bricks and mortar. Of course, the cost of the building does change with inflation but that doesn’t in my opinion increase anywhere near as the property market in certain areas. For example, in the US where we’re doing a lot, many areas are appreciating miles or have already and they’ll have the prospect to appreciated because of the crash in 2007 or 2008, they’ve got the potential to increase miles ahead of inflation.
What about agricultural land?
Farmland at the moment is rushing ahead of all other assets. In the UK, values rose 8.2pc in 2012, according to Smiths Gore…
Fundamentally, there’s increase in industrialisation and population across the world. That means there’s an increased demand for commodities such as timber and food and the right classes can be lucrative, but you’ve got to look what’s out there and see how likely it is to do what it says on the tin.
What are the risks involved in investing in agricultural land?
You’ve got to be very careful where you buy and do your research. Fundamentally, there’s a global increase in industrialisation and population across the world meaning that there’s an increased demand for commodities such as timber and food and the right classes can indeed be lucrative, but you’ve got to check on the detail of what is being presented and see how likely it is to do what it says on the tin you need ask the question “is there likely to be strong demand for that asset in the future?
How can investors double-check to be on the safe side?
One of the key things is to do your own independent research on the company and people behind the land investment, do they have a solid track record and experience in this or at least a similar asset classes? What are the risks and what has been done to mitigate any risks? Where is the end market for the product and has this been quantified and demonstrated clearly?
Are there advantages of land investments over straight real estate investment?
As long as it has the relevant permissions in place, you’ve got more options of what you can do. So for example, an investment we’re doing at the moment in South Carolina, USA, most of the investors are choosing to buy and hold because the market is increasing or it’s hit rock bottom and is already increasing, but a couple are choosing to build. It gives you a number of options depending on what your exit strategy is.
As markets start to recover, in the US and UK particularly, there is a drive towards construction for new homes. Does that make now the best time invest in land?
Because of the fact the value accrues from the land itself, the key is buying at the right time. With the UK, there are opportunities, but the reason I’m putting my personal money and we’re working in the US is purely because the prices have fallen a lot over the past few years. It’s a once in a lifetime opportunity to invest now.
How much of your own money have your put in?
Well…
Click here to listen to the full investigation.
Notes to Editors
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