The Rise of UK House Building and Implications for Land Investing

By: Lucent Group   03/17/2015
Keywords: Real Estate, Investment, Capital Growth

Housing starts and completions in England are up. But it takes the tenacious and well-advised investor to help the country meet the strong demand for homes.

Toward the close of 2014, the official Government statistics on house building in the UK are mixed but promising. This offers some degree of hope for investors and builders in the housing sector.

According to the Department for Communities and Local Government, seasonally adjusted housing starts (138,640 homes) now are 93 per cent above the recession trough (March 2009). Completions of homes over 12 months (the year preceding September 2014) hit 116,930, a hike of 8 per cent over the previous comparable time period (the year preceding September 2013).

As is well understood, the country needs to add at least 200,000 homes per year to meet pent-up demand in the face of England’s growing population. So there is no lack of need for even greater residential building in the UK. Investors through such programmes as joint venture partnerships understand this very well and seek optimal scenarios for achieving asset growth in relatively short (two to five years) development timeframes.

How do land investors accomplish this? Note that the land investor is different from land speculators and others who may engage in land banking: the individuals involved in strategic land development typically work in a sequence of well-managed steps to bring land into productive use for homes and businesses:

Step 1: Identify appropriate land for purchase - Professionals in land investing comb through economic development statistics to find where job growth is greatest and where locating a workforce optimally serves both employers and employees. From there, negotiations with existing land owners (public and private) with appropriate acreage results in a transaction of land to the investment group.

Step 2: Achieve planning authority approval for use designation - In Step 1, there is a good sense of where local planning authorities (LPAs) may be amenable to a zoning change (often from agricultural to residential). In about half of the country, local authorities have complied with the National Planning Policy Framework (NPPF) to establish local plans for development. In other places, the land fund investment managers make the case for how new development will benefit the area economically, physically and culturally.

Step 3: Build infrastructure - Once LPA approval is in place, the investment group goes about the business of building roads and utilities, site preparation that is essential to orderly and sustainable development.

Step 4: Construct and sell completed properties - At this stage, many investor groups sell the land to homebuilders. This allows an earlier exit from the investment with reduced risks associated with construction and sales. Homebuilders have greater expertise in what the eventual homebuyer wants and can afford.

Investors typically understand the need to work with specialists (e.g., experts at real asset investing) who can combine capital with expertise to produce asset growth. Similarly, the investor should consult an independent financial advisor to identify broader strategies for including real estate within a family wealth-accumulation portfolio.

Keywords: Capital Growth, Investment, Lucent Group, Real Asset Portfolio, Real Estate, Strategic Land Partnership,

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