Land Purchase Profits

The British government has predicted that the population of the UK will increase by more than seven million by 2030. This projection may even be an underestimate if recent figures for immigration from Eastern Europe are taken into account.

In some parts of the country, especially in London and South East England, there is already a lack of affordable residential property. The government is under increasing pressure to relax planning controls on greenbelt and agricultural land in order to facilitate an increase in the housing stock.

Pension funds, property developers, the Church of England, supermarket chains and many other companies have invested in land over the years, in the hope of making good profits from development when areas are granted planning permission for housing, retail or industrial development.

Land Banks
Private individuals have found it more difficult to invest in land because of the large capital sums required and the uncertainty of the timescale affecting when the value of their investment will increase sufficiently to offer a worthwhile return.

A number of ‘land banking’ companies have appeared, in recent years. Their business model is to buy large areas of undeveloped land, sometimes in the greenbelt, to be broken down into smaller plots to sell to private investors. These investors will be able to cash in if and when planning permission is granted on their plots. A return of 250 percent on investment in a 5-year period is possible, if planning permission is granted, but this rate of return is by no means certain.

A number of dubious companies operate in this sector, often making misleading claims when marketing their plots, particularly about the likelihood of gaining the necessary planning consents. 

If you are considering buying land through a land banking company, be sure to undertake your own research before applying for a land mortgage. Find out from the Land Registry whether the company owns the land that it is selling. Ask the company to justify its claims, in writing, about the likelihood of gaining early planning approval and check the company’s accounts to ascertain whether the business is financially sound. Complaints about land banking companies have become commonplace and it should be noted that their activities are not regulated by the Financial Conduct Authority (FCA).

Summary

  • Planning controls on greenbelt and agricultural land are likely to be relaxed in some areas, potentially offering large profits from land investment
  • Land banking companies offer a convenient way for individuals to invest in land, but many of their marketing claims should be treated with scepticism
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