Land Quirks – Where to Buy Land & Realise Capital Gain

When looking speculatively at land, it is easy to get caught up in the day dream of developments rising out of the ground showering the owner in pound notes. However, after the initial glaze has worn off, what most find is a world dominated by large players and high net worths.

Are there any bargains to be had? Emmm…I’m not one to place my faith in roulette.

It was watching a documentary on Warren Buffet and it led me to believe there was more to development than out muscling the big boys, and waiting for your “David” in the ongoing David vs. Goliath matches in the auction room.

It is a well known fact in the financial world that Warren started his career “Cigar Butting”. This is the term that describes scouring businesses to buy using solely numbers, looking for companies where there assets are worth more than their total share price. The idea is, that even if you closed the company down, you’d realise a little bit of value.

Well land can also be looked at in a Moneyball manner.

Area Land Price Hectares Price Per
Hectare
Rent Per Year
3 Bed House
Rent / Land Price %
Claygate, Surrey         30,000            2.6           11,719              4,800.00                             0.41
Surbiton, Surrey         20,000            0.1         232,558              5,400.00                             0.02
Godstone, Surrey         20,000            0.8           24,722         12,600.00                             0.51
Dinas Powys           6,950            2.5             2,780              8,340.00                             3.00
Sudbury, Suffolk         23,000            1.2           19,008              5,820.00                             0.31
Neath         25,000            1.2           20,833              5,400.00                             0.26

Above is a snippet of some research that’s we’ve carried out on all land for sale on the 3 main land websites in the UK. I started with some simple assumptions. All land must have access, all land must either be arable or amenity in use, all land must be sold in small plots of less than 5 hectares (Housing Associations don’t often land bank post 2008), all land must be on the outskirts of existing developments (within 0.5 miles). This search could be performed using excel, some nifty VBA code, and an internet connection.

The above extract is startling. I expect that not many searches are performed so calculated or on such mass. It throws up the anomalies. The land in Neath in the table, has by our assumptions intrinsically more value per pound invested than any other. It allows the investor the greatest upside by some margin should planning ever be granted. However, remember planning wasn’t one of our assumptions. This version of moneyball is a long term game. We have assumed that the market only has some inefficiency and will eventually catch up with it’s self. Our calculations using rent achieved as a ratio of cost per hectare attempts to level the playing ground when assessing a site. However, we acknowledge that this is a crude assumption – but sometimes there is a power to viewing the world in a simple manner.

The next step of our research is to analyse how long that correction takes, and if “bubbles of confidence” exist elsewhere – possible Surbiton, Surrey.

If you would like to hire our modelling knowledge, or any other Housing Association skill, our colleagues are waiting to help.

 

 

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