This detailed guide provides an overview of what to consider if you're thinking about buying land
Whether you’re looking to build your dream house or invest in land for development, most of the principles of finding a plot of land to buy are the same. Around 13,000 people successfully build their own home each year – which doesn’t include the multitude of smaller-scale developers who provide new homes for resale. Many people also see land as an alternative investment to property and monitor the market in order to find the right time to buy and sell land.
Whatever your intentions, thankfully the process of purchasing land isn’t usually as complex as buying property. With the right planning and advice, finding land to buy or rent can be worthwhile and rewarding.
If you’re looking to find land to develop then timing is everything. Buying land when demand for investment space is low is usually when the best acquisition deals can be found. Although land is a tangible fixed asset that will always have a base value, purchasing land is likely to be one of your largest outgoings. In areas where plots are rare and prices higher, land may account for around 50% of the total value of a completed house.
Land with planning permission is significantly more expensive due to its resale value, but investors can still maximise the sale of their land by understanding underlying value cycles and selling when demand for land is at its peak.
With any sound investment, it always pays to have a plan. Outline your budget, costs and resale intentions (if applicable) from the start – then get researching. For instance, it’s useful to remember that land values are generally relative to the state of the property market. Furthermore, investing in land means you’ll have to get your head around different types of land assets (but more on that later) and which one is the best investment at the moment. Markets can fluctuate, so gaining advice from a land agent or specialist consultant is the best place to start.
There are a number of ways to invest in land, such as through a company, consortium or directly as an individual. As always, when making any investment make sure you outline how much you can afford, the risks involved and how long you can keep your money tied up. You’ll also need to outline your overall budget, which should include the services of legal and surveying experts. Remember to always keep a contingency fund to one side as buying land can often come with unforeseen costs.
The local area will be an important factor when deciding on where to purchase land and analysing its potential resale value. If you’re looking to redevelop the plot into residential housing, find out about local transport links, shops and amenities. The local council will be able to provide you with details of any investment plans for the area which may affect how desirable your land will become in the future.
There are three basic categories of planning permission for land: no planning permission, outline planning permission (OPP) and detailed or ‘full’ planning permission (DPP). It is essential that you clarify with the local authority how they will let you use the land and ensure that the right permissions are granted. However, obtaining permission won’t always mean you can automatically build on the land. Remember to check any restrictive covenants through your lawyer. Furthermore, if you acquire a parcel of land with outline planning permission, you must apply for detailed planning permission within three years of the date it was granted.
Obtaining planning permission may take some time and decisions regularly have to go to a committee. It pays to establish good relationship with the local planning office and involve them from the outset to help steer your plans. Generally speaking, it is easier to obtain planning permission on a site that has been developed before, such as an old commercial property block or derelict building. If you choose to demolish an existing structure, you’re less likely to encounter hidden costs and VAT is reclaimable on new-builds. However, the footprint and height of the previous building may restrict what you are able to re-build.
When assessing your potential redevelopment site, look at all rights of way and access points to ensure that the eventual owners can get to their properties. Remember to check whether a right of way will allow you access for the number of units you want to build as not all are set up to allow unlimited access. There may also be public access such as footpaths to work into your plans.
If you’re looking at a larger scale development, you will need to work with the Local Highways Authority (LHA) to demonstrate that the roads are built to a certain standard. Dedicated highway engineers can undertake any detailed assessment before work begins. Remember also to leave enough space for turning and parking onsite. The LHA will eventually take over the responsibility for the maintenance of the roads within your development. Similarly, the local water authority will also look after sewers and drainage, so make sure you contact them in advance of the build taking place.
Boundaries are one of the most common issues with developments. Check where these are before you buy the land and work with any residents who are adjacent to your plot to reduce the likelihood of any issues. Assess in advance whether your development could have any negative impact on neighbours and what you can do to avoid this.
Look out for any further obstacles on your site, such as manholes or telegraph poles. Is your potential plot near a river or the sea? Check the flood map of at-risk areas from the Environment Agency to find out whether your site is on or near a flood plain. Furthermore, you will need to make sure that all utilities can be provided and whether they can be put in without crossing land owned elsewhere. Finally, make sure you clearly outline the boundaries of your individual plots with a detailed development plan.
In the main, there are two types of land: greenfield and brownfield. Greenfield sites have not previously been built on, this includes greenbelt land around cities. Brownfield sites are often disused or derelict land which has already been developed. Although greenfield land is usually easier to develop as it hasn’t been built on before, it is much more difficult to obtain planning permission from the local council and many of these areas are protected.
The Government is committed to developing brownfield sites as a priority and there are 66.000 hectares of these sites in England. A local council will generally look very favourably on restoration projects to clean up local eye sores or remove hazards in favour of more additional housing.
In recent years, the demand for timber has meant that the value of woodland has been on the rise – beating commercial property in terms of returns. Profit from commercial woodland is also tax free and any gains made on the value of forest are exempt from capital gains tax. Woodland can also claim business property relief, which reduces inheritance tax to zero.
There are a number of ways to buy land, such as submitting sealed bids, negotiating through an agent or bidding at auction. Local authorities, utility companies or even developers often have spare land for sale. Whichever method you choose, make sure your research is complete before settling on your plot. Use the search function from Harness Property to source an agent or find land for sale at the moment.
A great deal has been written in the press about land banking schemes. In these cases, investors are usually contacted directly and offered small plots of land with the promise of a large profit. But in most cases, planning permission has not been granted and is very unlikely to be given.
Not all firms are authorised investors so do not hand over any money unless you are certain they are legitimate. If you are being sold land advertised as having planning permission already granted, check this with the local council as this factor will greatly alter the price.
Whilst not all land banking schemes are scams, read the Financial Standards Authority (FSA) advice and be mindful that land investments are not regulated. The FCA can only intervene where a land bank will offer to manage and obtain planning permission for plots. These cases are considered to be collective investment schemes so the FSA has the power to act. When investing in land, always contact the local council to find out when it will be released for development.
A surveyor is vital to your land transaction as they will be able to value the site and advise on any areas which may need further attention. Their role is to make sure that a project is professionally developed and delivers best value for owners, investors and end users. Surveyors will look at all boundaries, services, power lines and rights of way. Boundary lines change over the years so the associated report should clearly outline the lay of the land. Always employ a qualified surveyor who is a member of the Royal Institution of Chartered Surveyors (RICS).
Specialist land or environmental surveyors will be able to assess the area for any risk of flooding or check whether the land is contaminated. They will also report on whether there are any trees or protected species in the area. These factors can often be mitigated, but they will need careful consideration and undoubtedly add to your costs. If the environmental assessment is positive then the next step is remediation, which is the removal of all known contaminants to levels safe for human health.
Appointing a qualified and specialist lawyer will almost certainly save you time and money in the long-run. Hold-ups can often occur with the wrong kind of legal expert working on a transaction, so make sure your lawyer understands how to purchase land and the various pitfalls involved.
Your lawyer should focus on the detail as early as possible, including whether the land has a clear title – which means it is genuinely for sale. They will also check permitted use, boundaries and other access rights to ensure you are able to convert the land according to your plan.
Your surveyor will have undertaken detailed assessments around flooding and any environmental risks, but a lawyer will also conduct searches to find out whether there are any historic issues with these matters. They will also check whether there are any restrictive covenants which will which may limit the number of properties you can build and rights of way. Finally, your solicitor will confirm the legal documentation around scale, size and the dimensions of your land to ensure that you are buying what is being sold.
If your land purchase requires a mortgage, make sure these funds are in place and you have evidence of your mortgage offer. If you are buying at auction then the legal process will be relatively swift. In these cases, you will usually purchase the land ‘as sold’, but your lawyer will still need to be satisfied the purchase is sound on your behalf.
Once all checks are complete and your lawyer is happy to continue, you are in a position to sign the contract and transfer funds to your solicitor ready for exchange. If your contract stipulates that the sale is dependent on planning consent then contracts can be exchanged on a conditional basis. This means you can still withdraw from the purchase if planning permission is refused even if contracts have been exchanged. This aside, once you have exchanged, you will be legally bound to the contract providing all conditions have been met.
Once your purchase completes, you will need to make sure your land is insured, particularly if it is to become a building site. Getting this wrong can be costly, both in terms of human impact and the financial penalties, so seek the advice of a specialist insurer to make sure you are not exposed to any level of risk. Once you have completed, your solicitor must arrange for payment of any stamp duty within 28 days and register your ownership at the Land Registry within two months.
If you are redeveloping the land, you will have already employed a residential architect to draw up plans for your units before submitting them to the council for planning approval. Once you are in a position to exchange, make sure your chosen builder and architect are closely aligned before the build process begins. You may wish to appoint an experienced project manager to closely look after the build process and smooth out any issues with multiple suppliers working together.
If you plan to build on your land then you may find that the Section 38 agreement (relating to roads) and Section 104 agreement (relating to sewers) are not completed by the time you come to sell the plots. Some buyers’ solicitors may hold back some money until this is agreement is executed by the council. You will also need to be aware of any obligation under a Section 106 agreement to provide any facilities such as public open space or affordable housing to the local community.
Buying land and selling property will come with similar due diligence processes, such as surveying and legal obligations. But with the right research, advice and with a bit of patience, your investment could really pay off.
The content in this post is for informational purposes only and is not intended to replace legal or specialist advice. Before making any decisions we recommend you seek professional advice.