Rising house and rental prices could drive businesses to join the land buying game, but is it a good move?
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Land sales are predicted to continue their upward trend for the foreseeable future as house prices soar. In some areas of the country, like London, property values have skyrocketed by £500,000. As UK house prices continue to rise, many residents are opting for the rural areas where they can buy land for cheaper instead. For some, they go on to build their dream home, but for many others, purchasing land is seen as a lucrative business investment. However, the great buying versus renting land debate has been a long ongoing one. A recent article published in the Financial Times claimed that British Land, UK’s largest commercial landlords, has collected less than half (46 percent) of the rent owed by retailers for the latest quarter. In other cases, businesses have recorded incredible success stories of land investments.
Will you benefit from tax breaks?
Any tax breaks that landowners can apply for effectively reduce the cost of the investment and make it more lucrative. In the UK, farmland owners can utilise the Red Diesel and the Business Rates Exemption. This is particularly useful for businesses considering agriculture, since federal regulations state that they may not have to pay business rates on agricultural land and buildings, including fish farms. Other countries have implemented similar schemes as well. For instance, businesses looking at land for sale in Texas could also benefit from the U.S.’s own agricultural and timber exemptions or a Texas Wildlife Exemption. Farmers can also enjoy other tax breaks on their motor vehicles and land machinery, so it is worthwhile checking out what tax breaks you may be entitled to depending on your land investment plans and the country you’re looking in.
What is the return potential of the land?
For land to be a good investment, it must yield a good return. Judging whether it is a worthwhile investment will include considering the location and condition of the land, along with its potential uses. For instance, if you are investing in land to use as rental income in the future, then you will need to calculate your rental yield on a buy to let property. A simple rental yield formula would be your estimated annual rental return divided by your investment. A general rule that property investors go by is the one percent rule: the property should rent for one percent or more of its total upfront cost. If you plan on developing the land, it can be helpful to research local property values in the area to gain an idea of the return you can expect to get.
Do you need planning permission?
One of the cheapest ways to buy land is selecting land without planning permission. Many landowners rely on the granting of planning permission to drive up the selling price. In fact, a common practice by developers is to purchase vacant land, wait for some time before applying for planning permission, and then resell it for 10 times the price. According to the Valuation Office, land with planning permission comes in at around £6 million per hectare. Considering an acre of farmland can cost upwards of £15,000, that is an incredible jump in valuation.
So while land without planning permission may be cheaper and tempting, businesses also need to think about whether the land would be able to get planning permission. Without it, you could be stuck with an investment form from which you will be unable to reap returns – in terms of rental income, business building income, or resale profits. If you are unsure whether the land has any planning permission, you can check the register of planning decisions or the Planning Finder search tool.
Investing in land instead of renting it can be a great move if it suits your business budget and plans. There is a long list of pros and cons against land investments as a business. However, in the end, it all comes down to your business’s unique circumstances. Only then can you judge your likely costs, returns, and attractiveness of buying land.