In the July 2008 Issue of Property Investor News
Land & Development
A volatile stock market, collapsing commercial property values, and a housing market in crisis - faced with this gloomy landscape, many private investors have been looking for more rewarding and secure returns elsewhere. And like Scarlett OHara in "Gone with the Wind" some of them are returning to the land.
For several years now, an increasing number of City high flyers armed with record bonuses have been buying up farms for both leisure and investment purposes. They have accepted annual income returns of around 3% from the farming side of their purchases secure in the knowledge that farmland is a limited and increasingly valuable resource.
In 2007 farmland values increased by just over 28% according to the Savills Agricultural Land Market Survey published in February 2008. Over the last five years farmland has increased in value by almost 100%. "Historically farmland has been a safe, low risk investment giving an annualised total return of over 10% over the past 30 years", says Ian Bailey head of Savills Rural Research.
Other investors are hoping for more spectacular returns through land planning gains. Typically, companies active in this sector might apply for planning permission to develop residential property on a greenfield site close to suburban and city edges. If the change of use is granted, the land can then be sold on to builder/developers at a handsome profit.
Buying land for development when the building sector is in crisis might be the ultimate counter-cyclical investment. But the companies involved see it not so much as a challenge but as an opportunity. According to Nigel Walter of Connaught Asset Management (CAM), land values in the sector of the market are driven by competition. And since the leading house builders started putting a hold on land purchases - at least one has closed down their landbanking department - prices have been falling. "As cash-rich buyers we are able to purchase land at a 35-40% discount, and we are waiting for the market to soften further", says Nigel Walter, the principle of Connaught Asset Management.
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