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Cebr Predicts 15% House Price Rise And What It Means To Investors

By Expert Author: Chris Westerman

Investors take note: The CEBR predicts a 15 percent house price increase.

The economy is on a slow but steady upswing, reflected in part by a prediction in house value increase. Land investors might benefit from this.

Is land a high-return investment? No, says the Centre for Economics and Business Research (CEBR). But it still might be better than the alternatives.

CEBR is predicting between a 14 percent and 16 percent rise in house prices by 2015. For homeowners and builders, that is relatively good news after the price dips of 2007-2009. The bleeding is stopped, the patient is recovering. Raw land prices somewhat mirror housing prices, with differences in niches. But no one would call this a boom.

It is a curious time for real estate, particularly those who approach it on an investment level. How properties and property funds or land perform against the alternatives – traditional stocks and bonds, or alternatives such as private equity, hedge funds and precious metals, for example – is the real question. In each of those categories in recent years, there has largely been slow growth, loss or volatility.

Investments in land can be attractive when approached with an appropriate set of expectations and knowledge. To wit:

Supply and demand curves suggest asset value growth. There should be a housing boom. The population in the England and Wales is on a steady growth curve: seven percent over the past decade, probably a faster rate of growth from now through to 2020 and beyond. Meanwhile, housing construction lags woefully behind because banks are not lending to builderss. The government however has introduced schemes such as Help-To-Buy to ease financing pressure on buyers. It seems inevitable therefore that house prices will continue to increase.

Returns in three to five years, more or less. Well-managed land investments are approached with a get-in-fix-and-leave strategy. That is, after the purchase of raw land, the specialists appeal to local planning authorities to rezone the land to serve local economic interests, which includes additions to the housing stock. The Localism Act of 2011 encourages this where prudent. The investment fund may build streets and sewers and install other utilities as needed – then sell to a developer who will build according to market demands. Good land investment fund managers will know from the outset about how long this will take.

Location is everything. Housing prices are high and getting higher in London. But at the same time homes in the North East and Scotland are losing their value. For land investors, it has to be approached on a very local basis, with a solid understanding of where development will find a ready market. This is typically where local employment needs are growing, sometimes due to a large, single employer.

Investing in land is a substantial commitment; one that the investor should expect will require £10,000 or more as an entry-level position. Investors should consult with a personal financial advisor to see how land investments affect their tax status, where it fits into near term needs and if the investment fund is well managed.

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