The dos and don’ts of buying land

You’d be forgiven for thinking that buying land is just the same as buying a house. But, other than the form of contract and the stamp duty you pay, the two transactions have almost nothing in common. When you buy a house, even if it comes with land attached, what you’re really buying is a physical structure with infrastructure (pipes, energy, drainage, and access) and most importantly the permission for that building to be where it is. And it’s that permission that holds the real value. Very often with land you’re either buying hope value or opportunity, an existing income stream and sometimes it’s a financial responsibility. Land may also be a route to receive a range of tax benefits. The work you need to do to establish not only your rights but also your responsibilities (such as maintenance of access to footpaths, for example or easements across land or rights) are significant.

Is buying land easy? Before the how, you need to establish the why. If you want a land holding because you fancy buying a farm or some woodland or another agricultural investment, then this is relatively straightforward. You’ll need to find the major land agents in the area you want to be, and they’ll have listings and prices. For occupied or tenanted land and there will be an asking price or process to establish the ultimate buyer. Not all land is the same. According to Strutt & Parker, arable land will cost you about £8-12,000 an acre with the highest prices in the Southeast and East Midlands and for pastureland you’re at £6-8000 an acre. This land is part of large estates that must be managed and run properly. They have a designated use and you’ll be hard pressed to develop them.

Speculators buy up land that they believe in the longer term will be turned over to housing – farms situated on the edge of villages, near boom towns, along infrastructure developments, for example. That means you’ll need to become a bit of a bore when it comes to studying local plans and council policy. Yes, there’s a presumption in favour of development and yes, government is doing what it can to make permissions harder to reject. Such is the need for housing. However, speculation is the name of the game because significant tracts of land are protected against development.

An acre of land that has permission to build multiple homes may fetch £300k in the north and over £1 million in the south. But you’ll be going head-to-head with professional buyers with deep pockets, long term horizons and expertise in securing permissions. In one project I have been involved with, it’s taken 20 years to go from arable land to a site with full permission for development. And during that time the land produced a small income and the costs for securing that permission wasn’t cheap. If you’re looking for a quick turn, look elsewhere as this is a long game.

Land, even if it’s for a garden, will generally cost £25,000 an acre. Unless there’s planning permission granted, in which case you’ll be paying for the uplift in value even if you’re not going to build.

What about that dream of buying a plot of land to build your own home? Perhaps an infill of a garden or old farm building for refurbishment? That’s all very well in a rural situation and can be done. Building costs per square metre can vary depending upon the materials you use, the end specification and the size of property. A typical three-bedroom home is between 90 to 120 square metres of habitable space. Build costs could be as low as £1,400 a sq. m or as high as £3,000 per sq. m. An average of £1,800 is a useful guide.

This route is fraught with difficulties and there’s a good reason why there’s a profit to be had. There’s time and effort, hassle and uncertainty, market movement and managing the process to consider. And then there’s the attempt to buy the land. Rarely will it be available via an estate agent. A few sites end up being marketed this way but usually you’ll have to go to an auction. And that means doing your research up front and being ready to bid and take the risk. You’ll be bidding against professional buyers.

Start to look through the auction catalogues and see what’s coming up. Whether it’s Allsops, London City Auctions, Savills, or Essential Information Group. They’re just some of the auction houses out there. But there will be one local to you, selling off bits of land here or there. And you could engage a local developer to help you. They’ll know the ropes. Be prepared to do the work on a site and you may have to bid on a few opportunities before you succeed.

Perhaps you fancy the idea of funding your new home with a development. The lowest risk will be to buy a site that has permission already. Take this site near Battersea Park that is coming to auction. It has permission for two houses with a total buildable area of 434 sq. metres. Build one and sell the other? The gross development value is probably £4 million. The build cost between £700k and £1 million and the land price estimated at £1.2 million. A tasty profit to be had, you might think. It might be possible to pay for 30 – 50 per cent of your new home. But you’re going to have a range of fees and financing costs and there’s the risk that the market could change whilst you’re building or interest rates may rise.

Outside of London, rural opportunities often arise from former barns and farm outbuildings. Because there’s a structure already on the land, it means that conversion and the planning process is a little less difficult. However landowners have often done some of that work ahead of a sale. That means you’re paying for some of the uplift in value as the project has been, to an extent, de-risked. This plot on the market with Savills is a case in point: it consists of former farm buildings on the outskirts of a Somerset village. This could have been a lavish single dwelling with outbuildings. However the planning permission has been given for four properties on the site. If too much work has been done towards the development, you may find much of the potential uplift in value has been eroded.

There is a reason people study real estate and set up companies to develop land and properties. There’s good money to be made. But whenever there’s a large profit on the horizon, it’s because you’ll be taking a lot of risk or capital outlay to secure it.