UK - Pension funds seeking slightly higher returns on real estate portfolios are being encouraged to turn their attention to ‘strategic land' investments in greenfield developments.
Otherwise known as serviced land investments, Cordea Savills already has two closed-end investment funds focused on the purchase and support of land development for residential property, but is now recommending institutional investors consider the concept as part of its real estate investment strategy.
Serviced or ‘strategic' land opportunistic investments are designed to try and make increased gains from the resale of undeveloped land which, it is anticipated, will gain development planning permission, can then be sold as services sites to housebuilders by splitting the land into smaller parcels or by installing infrastructure such as roads and drains to those developments.
The concept of buying greenfield land is of course higher risk, notes Kerrie Shaw, associate director of research and strategy at Cordea Savills, as local councils could refuse to grant planning permission and investors may not therefore see returns.
But Cordea Savills is now presenting research suggesting the value of greenfield land - agricultural ground which has yet to be developed on but which has granted residential planning permission - was worth around 450 times more than agricultural land by the second-half of 2007.
Cordea Savills' earlier Serviced Land II fund, launched this year and which raised £25m, also had target returns in excess of 15% per annum. The first purchase for SL2 was a 321-acre Greenfield site near Newport in South Wales for £2.55m.
"Many investors chase similar investment themes in UK property, overlooking areas that offer the potential for higher returns, such as strategic land," said Shaw.
"The great advantage of strategic land is that there is the potential for a very significant uplift in value from progressing the land through the planning process. Profits from land can be extremely high, even in times of falling house prices. Furthermore, value can be enhanced by making the land more readily developable. Moreover, we should not forget that the shortage of affordable homes is now at the forefront of the political debate," she added.
The UK government has published several papers and reports over recent years suggesting substantially more houses need to be built over the next decade - Gordon Brown recently suggesting three million new homes are needed by 2020 - so a green paper was published in July recommending reforms to soften planning permission and increase the potential unallocated land available for development.