Land a Great Investment?
Land prices have increased dramatically in the last decade, driven by fierce demand for housing on diminishing areas of undeveloped land.
"The greatest pressure on land is in the South East, the very region where help with affordability is most needed and where the average single plot costs £123,000" cry The Times (9/12/05).
"Britain is facing a housing crisis with a potential shortfall of 1.4 million homes… Housing experts claim that house-building needs to increase by 33 per cent from the current 154,000 a year to 220,000 a year to meet the rising demand, or the country faces spiralling homelessness and overcrowding."
In addition, research by chartered surveyors Savills found: "The value of small plots of green field land more than tripled between 1995 and 2005."
The only way such targets can be met is through local government re-designating land currently classified as green field or green belt, as suitable for residential development. The Daily Telegraph reported, "Mr Blair’s Government has approved 162 different schemes for building in the green belt… Planners will be forced to allow the building of a third more new homes every year, with the building taking place in the parts of the country where house prices are the highest, the Government said yesterday. Gordon Brown said the Government would be looking at ways of increasing the number of homes built every year from 150,000 across Britain to 190,000."
"More and more people are being turned on by land as an investment vehicle" - Royal Institute of Chartered Surveyors (RICS)
Large profits can be made from buying land on green field sites, which may later obtain residential planning permission as a consequence of the chronic housing shortage.
Undeveloped freehold land will increase in value two different ways. First: the value of land rises as property prices increase. Second: should the land gain permission to be developed, its value will increase dramatically.
The Government’s Barker Report (March 2004) stated that the development gains can be 300 times the agricultural value of the land. As recently as December 2005, The Times claimed, "The value of a piece of undeveloped land can increase tenfold once planning consent is granted."
As freehold land becomes increasingly scarce, many private investors see investment land as a low risk investment vehicle, a solid and tangible asset unlikely to depreciate in value, with significant medium to long-term potential if the land purchased today without planning later receives planning consent. Such returns are known as 'development gains'. These are usually greatest when planning permission is granted on a green field or green belt site. About 12 per cent of land in England is currently classed as green belt.
Although windfall gains of this kind are, by their very nature speculative, no-one can say with certainty which land will obtain future planning permission. Current law states that planning designations should be reviewed by local authorities every three years.
Date: 14.02.06
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