Glossary

Contract for Sale is a legal contract that governs the sale and purchase of UK land, be it investment land or otherwise. As someone buying land as a land investment, you must ensure that your ownership of the investment land is transferred from the land investment provider to you via a legally recognised Contract for Sale. In land investment, the Contract for Sale and the investment land buy-back agreement are distinct legal documents despite the fact that together they comprise the legal framework for a functioning land investment. On any land for sale which you are offered, take careful note of the terms of the Contract for Sale, and where appropriate seek independent legal advice from UK land/UK land investment legal specialists.

Covenant is an obligation on the part of an individual or a party which is defined in a legally-recognised document. In UK land, covenants often appear on title deeds and prohibit certain uses of that land. Thus, if you are considering buying land, you should ask of the firm with land for sale whether there are any covenants in place on the land investment site, and if so what they entail. If in doubt, always seek independent advice from a solicitor specialising in UK land/UK land investment.

Density In terms of UK land, density pertains to the number of buildings (usually homes) per acre. Due to the high population and relative shortage of UK land, density is a key tenet in Urban Planning. As a broad guide, around 17 homes per acre of UK land is common, although housing density is a function of the needs of the community and local existing density levels. Final returns from your UK land investment will likely be impacted by density in the plans so when buying land, be sure to establish what is the density level on the investment land proposed by your land investment provider.

Depreciation A common misconception in property and land investment is that ‘houses rise in value’. In fact houses, like cars, tend to depreciate or shed value as they age. It is the underlying UK land that is rising in value, not the bricks-and-mortar. Because it cannot be manufactured and since demand for homes is rising, the history of UK land is characterised by inflation rather than depreciation. Before buying land it is advisable to ask of your land investment provider what has been the ‘organic growth’ in developable and bulk land values over the last decade in the area in which the land investment site is located.

Development Expenditure (DE) is the term used to reflect the total costs of a UK land development project. It is comprised of the costs associated with buying land as well as all the work required to achieve planning permission and carry-out construction on the investment land site. It is usually an a priori calculation used to evaluate the financial viability of a UK land development project (the DE will be subtracted from the Gross Development Value ((GDV)) to arrive at a projected profit figure). From the perspective of a private investor buying land purely as a land investment, it is well worth enquiring of your investment land provider what they expect the DE and the GDV to be, so you can see from where your land investment returns are derived.

Development Plan is a term used in UK land to refer to documents which shape UK land use and planning in a given area. Development plans are a product of the UK land planning system – with the recent changes to the planning framework Unitary Development Plans are being superseded with more nebulous development plans under the auspices of the Local Development Frameworks. These are likely to result in a substantial rise in new houses being erected on UK land in the next few years.

Disposal (of UK land) is another term for ‘sale’ and is particularly relevant to those buying land as a land investment at the point at which a UK land planning award is granted. On residential development land investment projects for instance, the nature of the disposal is the key component of the ‘exit strategy’. It is possible that your UK land investment provider will actually be responsible for the construction, although more likely is that they will dispose of the investment land site to a third party. Your final land investment returns will be directly correlated to the price your land investment provider achieves for the investment land site. It is therefore appropriate to ask any firm with land for sale as a UK land investment what are their plans for site disposal once planning is granted.

Draw Down in a UK land development finance context usually refers to the utilisation of a credit line (in increments known as ‘tranches’) provided to a developer for UK land planning and development purposes. If you are looking for a UK land investment, it is worth understanding how the firm with land for sale intends to finance the necessary Development Expenditure

See also Development Expenditure

Entry level in land investment terms refers to the minimum investment a person can make. Depending on its location and intended use, investment land has various entry levels. If you are buying land as a speculative land investment it is possible to pick-up investment land fairly cheaply (e.g. at or around agricultural prices) although this form of UK land investment has the least defined exit strategy (see Exit strategy). A self build land investment project tends to have a high entry level as the investment land is usually bought with some form of UK land planning permission on it (meaning the land already has substantial value) and construction costs must also be factored-in (and good self build land investment projects have a contingency fund in place as well). Investment land for sale on a residential development project usually has an entry point of c. £15,000 although some land investment firms offer it more cheaply. In land investment, the minimum entry level offers no insight as to whether the investment land is good value or not: UK land with poor development prospects which is sold cheaply may be superficially appealing to the person buying land as a land investment. However that person may well be better advised entering a land investment project with a higher entry point, if the investment land on offer is of a superior quality.

Exit strategy In land investment if you do not have an exit strategy (or one has not been put in place by a third party), you will not be able to realise your land investment gains. To illustrate, let’s take the three main types of land investment (speculative investment land, self build investment land and residential development investment land) and give examples of land investment exit strategies in each case. In order to exit a speculative land investment, the investor is relying on a person or institution buying the investment land site from them in its ‘raw state’ (with the rise being attributable to organic growth in UK land values). On some self build land investment projects the exit is less relevant since the person buying land is doing so in order a build a dwelling in which they can live. Other self build land investment projects are just that – pure land investments in the sense that the person buying land is doing so to make money. In this case the investment land exit strategy is fairly obvious – complete the construction and sell it through the usual channels (estate agents, auction houses etc). On a residential development investment land project the exit strategy usually entails the land investment provider ‘buying back’ the parcels of UK land they originally sold to their investors. The key variable here is how the investment land is valued at the buy back stage: in order to avoid a conflict of interest the investment land should be valued independently so the price at which the buy back is set is a true reflection of market conditions.

See also Disposal