Make a difference while making money

Investing in land has been used effectively by big businesses for years as a way to make their millions.

The advent of land investment companies opened up this opportunity to the man on the street and offered private investors the chance to test out a new investment opportunity. Land investment is always going to be high risk, but therein lies the attraction of the potential high returns.

The chance to invest in this type of company while also making a real difference to the country’s affordable housing shortage has now arisen; but potential investors will be keen to know if they can still expect significant returns on their investment with a clause of this nature inserted into the sale of the land.

The idea behind this type of initiative is that housebuilders will be forced to introduce affordable and environmentally friendly housing on their developments if they want to buy land from the investment companies.

The shortage of affordable housing has been well publicised in recent months and investments such as this have been introduced in direct response. This is an issue of concern for everyone from the government and local councils to housebuilders and of course home owners. However, moves to address this shortage are going to take some time to achieve and the government’s policy of delivering affordable housing can only be met by allocating housing land to enable the private sector to assist in delivering social/low-cost housing.

Land investment companies introducing affordable housing clauses to new sites coming to market promises to make a real impact in the longer term; a company could hope to deliver 5000 affordable homes in the next 10 years. Good land investment companies will be in a strong position because carefully bought land should fit in with the local council’s objectives for development.

Introducing plans for affordable housing before shares in the land go on sale means the land can be marketed properly and private investors can make an informed choice about the impact of their investment in the long term. This also allows the housebuilders the opportunity to get on board as early as possible and tie down the details of potential housing on the land prior to planning applications being submitted.

To take Scotland as an example of the strain on housing stock and opportunities for investment; the population is growing by an average of nearly 20,000 each year. People are also living longer which puts an added strain on the housing stock and a huge proportion of first-time buyers are struggling to get a foot on the property ladder.

The property sector is one of the fastest-growing parts of the economy, with an annual growth rate of 4.8 per cent between 2002-07 and recent performance has been better than the UK average for the sector.

These factors make land an increasingly attractive investment opportunity. Shares in land can be bought for as little as £5,000 which translates to a payment of £18.50 per week over a five year period; far more affordable than the average mortgage.

It could reasonably be expected this type of investment could deliver a return of several hundred per cent in the longer term which is significant, even on an initial investment of £5000.

Of course this is a high-risk, long-term investment so is not suitable for everyone, but there is no such thing as the average investor and people use it for everything, from a way of getting on the property ladder to an alternative pension investment.

There is also a growing demand for people looking for their investment not only to have returns but also to be ethical or deliver benefits. The pension service has long had a range of options allowing people to choose where their money is invested and it makes sense for land investment companies to follow in this trend. As a nation we are becoming more socially aware and as land investment companies become more established and build their reputation this type of investment will grow in popularity.

Anyone looking to make an investment of this kind should ensure the land investment company has a good working relationship with the local councils to ensure that land purchased with this type of development in mind is actually on the council’s radar for development and fits with its affordable housing plans for the area.

This does of course raise the question of corruption in the industry, but any company worth its salt will be happy to provide documents to potential investor’s lawyers or financial advisers and should in fact insist on this, especially for first-time investors.

There will always be companies out there that buy up pieces of land that have no chance of ever receiving planning permission and anyone looking to invest in land should do their research in advance. Good companies will work with renowned architects, encourage you to speak to council planners to confirm details of the ground and provide you with all the necessary documentation for your share of the land.

At this point in time, investing in land in the medium to longer term (five to 10 years) has never been a more inviting proposition, especially with other investment options being less attractive.

While this is not an investment opportunity to be rushed into, with careful consideration of the company and input from your financial adviser or lawyer there is no reason why investing in land with an affordable housing clause will not deliver significant returns in the medium to long term.

Mark Wilson is managing director of Intelligent Land Investments

Article taken from FTAdviser.com