Uk Strategic Land: The Attraction For Global Investors

By Author: Bradley Weiss
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By Kevin Ballard



Volatility abroad drives an interest in English property. But domestic demand for housing is just as strong - and long-term - a factor for investors.



Seven years after the global financial crisis and the recession that followed, the times could not be more challenging for investors. There is much uncertainty and fear in global markets.



We don’t have to look far to see major economic problems in Europe with the situations in Greece, Ukraine & Russia all well documented. The opportunist has always looked to the BRIC economies for reliable growth. Today, however, we see that despite a new government, Brazil is still struggling with no signs of improvement and Russia is having to deal with UN sanctions & falling investment. Whilst India has had a bad time, it is showing signs of growth but the once reliable Chinese markets are in a state of disarray. A bear market and a devalued Yuan do not bode well. Even in the U.S. where markets have shown steady growth toward record highs, there is cause for major concern due to a ...
... combination of China’s slide and historically low global oil prices. Both Warren Buffett and Gerald Celente (Trends Research Institute) are forecasting a crash or major correction in the US Market before the end of 2015. Only time will tell if they are correct but their records are pretty good!



It is in conditions such as those outlined above that the demand for non-market correlated funds increases. Non-correlated real assets, which include market-traded REITs, buy-to-let residential holdings and investments in the house-building sector (raw land, strategic land development and homebuilder firms) can provide that balance within a portfolio.



There are some fundamentals well known to both British and overseas’ investors. Stable governments and economies such as in the UK still provide security and predictability to global investors. Also, land and property are finite and are historically smart, non-correlating real assets that counter market volatility.



Due to population growth and youthful demographics, alternative investments in the UK is housing is particularly intriguing. Population growth and demographic factors are key reasons for such high demand. The Census 2011 revealed a net population increase of 7 per cent over the preceding decade, the largest population increase since census began almost 200 years ago and this certainly places pressure on existing housing stock. The ONS predicts population growth of over 17% in the next 20 years and with house building at its lowest rate in over 60 years the UK government is now referring to UK housing supply as being in ‘a state of emergency’. Increased immigration, higher birth rates, lower death rates, and an increase in single person households all combined with decades of undersupply have contributed to the current UK housing crisis.



There are many reasons as to why there is such high demand for homes while supply lags behind demographic needs. Suffice it to say that owners of land and built properties, investors and homeowners alike, are seeing high returns on their investments. London residential real estate is fetching prices more than 30 per cent higher than in 2007, before the financial crisis of 2008 and the recession that followed. Growth in prices outside London is also picking up steam now.



Still, why would an investor put money in the housing alternative to the stock market? Why would investors from within and outside the UK specifically look to diversify their portfolios with something such as property funds? How does strategic land investing serve both the investor and the high demand for homes?



To begin with, many investors simply like diversity, for all the reasons commonly cited and recommended by financial advisors. For an investor, finding land where new homes can and need to be built often provides a relatively quick upswing in asset value. A strategic land investment can turn empty fields into housing in five years, sometimes half that time.



But the situation in the UK goes beyond the norm, as critical factors are lined up behind real estate investing. They are:



The undersupply of housing needs at least 10-15 years of aggressive building - Virtually all observers and analysts echo what UK property fund managers tell their investors, namely: it will require construction of at least 200,000 homes every year for years to come to catch up with market demand. The country currently needs about one million new dwellings and will require even more in the future.



This is not just in London - in fact building is more likely to occur in places such as Manchester, Leeds, Peterborough, the South Coast, North West and the North East because of shifting populations of young people and growing economies in those areas. The inflated costs of housing and doing business in London have finally reached a point where tech companies, companies in transportation and the energy sector, as well as university spin-out firms, are happening outside of the Capital City (example: the University of Southampton’s medical research has spawned Karus Therapeutics, Synairgen, Epi Gen, Capsant and iQur, all generating jobs on England’s South Coast as they forge a healthier future on a global scale).



Government programmes to encourage home buying are working - Help to Buy, initiated in 2013, is helping thousands of younger buyers get on the property ladder for as little as a 5 per cent deposit. The Starter Homes initiative will enable both the construction (through an expeditious planning process) and purchase of new-build homes on brown field land at a 20 per cent discount rate to first-time, under-40 buyers. And the Help to Buy Isa enables near-future homebuyers to save a deposit with a Government contribution. With more qualified buyers gaining access to financing, property fund investors and builders have a bigger market to serve.



The planning process is improving - According to a 2014 report by planning consultancy Turley, the success rate of planning appeals for all types of development has risen from 35 per cent to 42 per cent in the two years after the National Planning Policy Framework (NPPF) came into force. Approvals of residential development of ten or more dwellings grew even faster, from 58 to 67 per cent approvals on appeal. The move to localism is indeed freeing up more land for building.



With stock markets on a volatile path and with some of the industry’s most influential investors/forecasters warning of a global market crisis I hope that financial advisors have taken a diversified approach to client portfolios. To use a Warren Buffett quote ‘’only when the tide goes out do you discover who's been swimming naked’’.