Whether you are looking in the UK, where the population continues to grow, or some of the more populated areas of Africa, which will hold 40% of the world’s population by 2030, land is very much at a premium. As a consequence, a number of long-term investors are now looking towards introducing undeveloped land to their portfolios as a means of benefiting from future property market growth. In theory this seems to be a very sensible move but there are obviously a number of issues to take into consideration.
Sell or develop?
If you acquire land are you looking to sell the land to a developer in the future or are you looking to develop the land yourself? When acquiring any asset it is vital that you have your own exit route in mind but these are the main options for land investment.
The most critical decision you will have to make when looking to dispose of land investments is timing. While it will obviously depend upon where the land is situated, in theory the value of land should continue to rise in more populated areas of the world. This is simply because land is a fixed asset and by definition there is only so much available. In many ways a decision to sell land, as opposed to moving towards development, will be about your own financial requirements or where you can best invest the proceeds.
In theory there are significant profits to be made in the buying and selling of land but it will obviously depend upon the area, planning permission, demand, etc. However, when looking at buying land and developing a property then selling into the market the potential profits are far greater.
Developing your own property
The earlier you join the investment chain from acquiring land to developing a property to selling into the wider market the more potential gain. The reason why there is significantly greater potential gain is because you will be taking more risks along the way including planning permission, cost of development and ultimately demand. However, if these risks are managed on a strict basis there is no reason why you cannot crystallise a significant return from buying the land to selling a property development.
The key to maximising your profit is to keep costs as low as possible, negotiate the best deals from buying the land to developing the property and then selling this to a hungry market. The timing of any sale will obviously have an impact as well but if you are stretching your finances there is a chance that the timing issue could be taken away from you.
While many people think that buying a property is a significant risk, and in theory it is, there is a greater risk but also a greater potential reward when buying land to develop. One cost which many people fail to acknowledge is the length of time your investment is “dead money” and earning no income. However, managed correctly there is no reason why acquiring land, developing and selling should not become a lucrative career for you in the future.