Is land a good investment? Of all the ways of investing in property, investing in land is one asset class that is often overlooked. So in this post we’ll look at what you need to know about investing in land and ask if land could be a good investment.
Buy land, they're not making it anymore .... so said the famous US writer Mark Twain.
On the face of it, it’s a very sensible piece of advice. New land can’t really be made to any extent, but it’s something we just can’t do without. Normally when something has strong demand but finite supply the price always goes up.
It’s generally true that land has good potential to return a consistent profit. It is something of a sure-but-steady asset class. In the good times land values tend to rise steadily rather than boom. But even in the not-so-good times land tends to hold its value well and doesn’t crash spectacularly like some other assets.
This report from experts Savills says that over 90 years from 1926 the value of UK farmland rose from £30 per acre to £8,000 per acre!
So should you consider investing in land?
Here are a few important things you need to know about investing in land. First of all it’s important to understand the principle that the value of land isn’t in the land as such, but in what you can actually do with it. Here are the main uses for land:
To exploit its mineral rights. Land which offers scope to exploit its mineral rights –everything from mining for gold to a quarry for building materials – can be valuable for that reason.
Other more contemporary uses which are associated with this include the possibility to use the land to produce renewable energy, such as with wind turbines or a solar farm.
To use for agriculture. In other words farm land. For example, land which can be used to grow crops, farm animals or perhaps grow timber.
The important thing to know here is that the value of this kind of land can vary significantly according to its quality and exactly what kinds of agriculture it can be used for.
To use for building on. Including industrial, commercial and residential development.
This type of land can be highly valuable in the right circumstances. For example, buying agricultural land and then building houses on it will usually see a huge uplift in the value of the land. (The catch here of course is that the land needs to be suitable for building and you also need to have, or be able to get, planning consent which isn’t always easy.)
Land you can’t do anything with! Either because of the nature of the land or because of planning restrictions. At best, you might be able to use it to keep horses, keep chickens or maintain it as a wildlife habitat. This is usually the least valuable kind of land.
Here’s what you need to consider if you are going to invest in land successfully:
* Before you begin, have an investment strategy. Are you hoping to make a quick return from the land, use your land to produce an income, or just hold it long term in the hope its value will rise?
* Know what you are going to do with the land. Are you going to use/exploit it yourself, rent it out to someone else, aim to flip it for a quick profit, develop it yourself or sell it on to someone else to develop?
* Research, research, research. Look at what land is available in your chosen area, what it is currently used for, what it is/is not suitable for and what other owners/investors are doing with the land if anything.
* Take professional advice. This is really important. A land agent or a surveyor with experience in the type of land you are considering buying can help you make sound investment decisions. They can advise you on current and possible future values for the land. They can advise you on who might want to buy or rent it from you. They can advise you on the chances of, for example, getting planning consent to develop it.
There can also be tax advantages (and some disadvantages) of investing in land. Plus financial incentives and subsidies may be available with some types of land which can maximise your return from it. Again you should take expert professional advice on this.
* Be aware of possible land investment scams. Small parcels of land advertised and sold as having investment potential, eg. because a developer ‘might’ want to buy them in future, are often not very good investments overall.
* Lastly when investing in land, as with other types of property investment, it is usually sensible to take a long term view. Although it’s possible to make a big short term gain from investing in land in some cases it’s usually best regarded as something that will produce the best returns in the long term.
Another report from Savills says that over the past 100 years average GB farmland values have returned 6% annually, and that this equates to just over 1% compound annual growth rate over the same period.
So the answer as to whether land can be a good investment is that, yes, it can be. It may be a good home for your money in what are likely to be turbulent times ahead. But it’s absolutely essential to know what you are doing before you invest in land.