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Can Value Growth Potential Still Be Found In Uk South East Raw Land?
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Real estate values in London and the South East have proven to be more resilient in the recession. But does that mean raw land investment opportunities still exist?
The recession that began in late 2007 has had a different effect on London and the South East than in the rest of England, Wales, Scotland and Ireland, as well as most other parts of the Eurozone. That is, while prices of homes fell everywhere, deeply in many areas, those drops were not as pronounced and the recovery has been more robust in the South East and London.
According to a publication, The UK’s Housing Crises/CentrePiece Winter 2012, by Henry Overman, director of the Spatial Economics Research Centre and a professor of economic geography at the London School of Economics, the two areas both experienced about a 9.3% drop in value from 2007 to 2009. London recovered quickly, with a 5.5% rise by 2012, and the South East a bit more slowly, reaching a 2.3% rise by 2012. Compare this to a 12% drop in the North East and 10% in the North West.
The declines in construction in all regions have been even more pronounced, notes Overman. “There has also been a severe slump in construction in these parts of the country,” he says. “In the North East, construction (measured as permanent dwellings completed) has fallen by 36% from its 2007/2008 peak.”
Overman points out a key difference in construction activity between London and the South East compared to points North and West. A slowing of construction activity there, he says, “is somewhat less pronounced: 12% down from the peak for London; and 19% down from the peak for the South East.” So, for the homebuilding industry and its investors, business has been quite slack, but less so in London and the South East.
This provides important points of consideration for both those who engage in land investment and those who invest in homebuilding. One might gamble a bit to invest in other parts of the country, where prices of existing homes and land are lower than elsewhere; the question remains as to where and when the upside will come. Or, they might instead invest in London and the South East, where economic activity was harmed less by the Great Recession, and where recovery seems to be underway.
Of course, as the most populous and economically advantaged area, is there still an upside to buying raw land in places such as the South East? Given that there is no raw land to speak of in London proper, the answer there is a simple “no.” However, PropertyWire.com, an industry web publisher, says, “the rest of the country is way off peak [2007 values]…[but] the South East is expected to be the next region to recover to peak values.”
The publisher goes on to note that the real estate firm Savills predicts that serviced land values will not return to their former peak before 2016. The director of development research at the firm notes that population projections suggest an expansion of London into the outer zones, including perhaps Green Belt lands as planning authorities might allow. In particular, he notes that government-sponsored “new build schemes” should encourage building to suit the middle market, which is significantly undersupplied across the country.
Perhaps the key point in Savills’ prognostication is that already-serviced land will not peak for until 2016. Where there is un-serviced areas – raw land appropriate for future development – there therefore remains opportunity for asset growth.
There certainly is raw land in the region, the development of which is dependent on increased population and economic growth factors. A good example might be Fareham, situated between Southampton and Portsmouth. A market town, Fareham has evolved from its industrial past producing bricks and chimney pots to becoming a retail mecca, as well as a base for call centres and banks. Regional planners call for the addition of 13,700 new homes in the area by 2026. This will require much land development.
Fareham is just one example, illustrating the pro-business and pro-employment zeitgeist of the region. As town centres expand to accommodate new employers, land investors and developers will play an important and essential role in providing housing for workers.
Individuals who consider making alternative investments, particularly raw land assets, should independently meet with a personal financial advisor. This counsel will help the investor weigh the pros and cons of real estate opportunities within the context of the individual’s complete financial portfolio.
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