The Fat of the Land

Stick a pin in any point in history and man will be bargaining over, betraying each other for, working for, dying for, one thing – land. As one American realty billboard read, ’Buy now! They’re not making any more dirt.’ From Mark Twain to Steinbeck’s Mice and Men, there’s no shortage of the opinion in literature and today the media is as consumed by the subject as ever. The current disconnect in between the financial security of young and old is much discussed and the gaping housing deficit stretches like a canyon between the generations. This causes many to conclude with varying degrees of head holding despair/ empty nester’s joyful relief (delete as you feel appropriate) that we have raised a generation who will simply never move out of their bedrooms.

In the November budget, Chancellor Philip Hammond announced the government’s policy to build 300,000 new homes each year by 2020 – up from the previous target of 240,000. Clearly, these homes will all need land to be built upon and having a strategic stake in undeveloped areas can allow investors to take advantage of that demand and achieve high potential returns on investment. Most qualified investors can benefit from having at least some exposure to it in their portfolio and land brings with it the obvious advantage of being a tangible asset which is always going to have an intrinsic value – but of course, investors should always seek professional advice when considering financially complex products.

Property itself tends to require a significant amount of management and brings with it maintenance costs and council tax even when vacant. Land however can be bought and forgotten. The problems with land investment tend to be firstly that one needs a big stake in the first place and if you’re looking for diversification, this might involve committing too much capital.

Secondly, unless you’re an expert, sourcing the land tends to be a hit and miss affair – it seems as though you only hear about the good stuff after it gets snapped up. Sourcing and identifying suitable sites is a complex process that requires specialist knowledge. Lastly, getting planning permission is a whole other quagmire. Local authority planning departments aren’t renowned for being easy to deal with. Neither is the planning process necessarily an intuitive, much less a predictable, one.

This is where Intro Crowd comes in. The company, now in its third year, is a crowdfunding platform that combines developing land projects with the chance for qualified investors to buy a share in them. To find out more on which potential investors qualify please speak to Introcrowd or further information is available at Introcrowd’s website.

A strategic land investment opportunity generally refers to greenfield land that is well-suited for development, due to close proximity to key transport links, high local demand for housing and nearby amenities in a neighbouring settlement. The team at Intro Crowd relies on decades of experience in land and property, with sites selected by a Fellow of the Royal Institute of Chartered Surveyors. Once the campaign has been crowdfunded, the team manages the strategic land acquisition process, then it’s a matter of hoping for an opportunity to obtain planning permission and thus for the value of the land to increase, selling the land and passing the returns back to investors.

Going For Gold

Intro Crowd’s Land and Planning Director, Christopher Merriman explains:

“We offer parcels of land at about five acres that sit on the edge of settlement and there is a planning policy which we can use to the advantage of our qualified investors. It is national planning policy that every local authority has to demonstrate five years’ deliverable housing and they go to extraordinary lengths to prove that they’ve got five years’ worth. Local authorities don’t want their five-year supply to be found wanting because they then lose control of where houses go, as effectively central government takes over. If the local authority refuses a site that’s outside the settlement boundary and that applicant appeals and it is then proven that the authority has fallen behind in their five-year supply, it is deemed that the authority doesn’t have a local plan. At this point, central government may say, well I’m sorry, you don’t have a five-year supply, we think this is a good site – and permission gets granted. In this way, any site can be put forward as an application for development, providing that it is sustainable. We are buying sites that are in sustainable locations but that are not identified as candidate sites at this moment in time and the reason we pick those is they’re cheaper. We buy next to settlement locations, in non-identified sites, where we think that authority is close to not having a five-year supply and then it’s a question of waiting until the authority is shown not to have a supply and we can submit a planning application.”

So, how much can/do investors typically invest?

Says Merriman, “Our selling point has been that this is an opportunity for individuals to get into land ownership and see the uplift in land where previously this has been the reserve of the very wealthy”

Currently Intro Crowd buys land with a view to residential planning but it may consider commercial land as the business develops and it widens its portfolio. Christopher Merriman tells us: “We back up the offering with a planning report as well as a valuation. After I have apprised a site, I will commission a report from our planner. Ideally, we are looking for them to say this isn’t an immediate site, it is a site for the next planning period and because its edge of settlement we know it’s a candidate site, should the five-year supply be lacking. In the current case, we used Pegasus Planning to substantiate the offering. We can then demonstrate a predicted return in terms of what the site could be worth if it should get planning, so the investment is completely dry until we get consent and the land is sold”

“Our planning consultant has advised that one is likely to be realised in the next plan period. The council have historically fallen behind in their five-year supply and we believe they’re going to fall behind again. It’s difficult to forecast but I’d say it could easily be closer to four years than beyond five years”

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Does Intro Crowd ever get involved in the development process itself, beyond the planning stage? 

“No. The biggest uplift comes on gaining planning consent. There is further profit to be made out of building the site out, but the graph shallows out. What we’re about is identifying the right site, getting the planning consent and selling it to the house builder, at which point the investors realise their capital.”

So, if someone buys at the beginning of the process, do they pay the same as someone who buys further into the process. Is the price the same?

“That situation doesn’t really occur,” says Christopher Merriman. “The timescales are pretty short so there’s no real risk differential. The price is the same. In fact, the crash to bang time in terms of launching the site and closing the site has dropped from ten months to six months and this one could be three months. There isn’t a price difference between the first and last investor as with the timescales we’re talking about it wouldn’t really be appropriate anyway.”

There has recently been a lot of noise from various politicians, accusing developers of ‘land-banking’ – sitting on developable land to inflate demand and therefore prices, with suggestions that such practices should be penalised. Is this something that you see affecting strategic land investment?

“No, it’s not. Not at all. I think this is a myth that house builders are landbanking. I have clients who have bought land on the back of an outlying consent and you’d think great, that’s going to be straightforward – just matter of filling in the details and ticking the boxes and yet the reality is that local authorities can be very difficult to deal. The planning process can be incredibly frustrating. Housebuilders aren’t sitting on land voluntarily deliberately – they’re desperate to get their developments built and get a return on that land. They’re just being frustrated by the system, so if the government introduces taxes, I think that’s going to be counter-productive. It’s not the right method. In the case of Intro Crowd, we are certainly not sitting on land, quite the contrary – as soon as we get planning consent we want to get on and get it sold and aim to get the money back for the qualified investors.”

Christopher Merriman continues, “We’re looking for more land all the time and we want to offer a diverse choice for potential qualified investors.

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 For tax information on strategic land investment, please consult your advisor. This article is for educational purposes only and does not constitute investment advice. This article does not amount to an invitation or inducement to buy or sell an investment nor does it solicit any such offer or invitation in any jurisdiction.