The famous quote attributed to Mark Twain about land being a good investment because they don’t make it anymore will always have relevancy, but when it comes to most types of investing, timing is everything.
When researching for emerging trends in land and property investment in 2016, the PWC emerging trends in real estate report is not a bad starting point, at least if you are looking at the markets in America and Canada.
The rise of the 18-hour city
One trend that leaps off the pages of that particular report is the emergence of what the report refers to as the 18-hour cities. These so-called 18-hour cities are potential investment hotspots that offer workers the infrastructure they need for work and living, but without the price tag of the major cities.
Of course you always have to make your own mind up about a real estate report talking up investment trends that suggest a growing demand for real estate in these second-tier areas, but if you are trying to answer the question about whether land is potentially a good investment for 2016, trying to find land that is ripe for development in these growing areas, does at least offer some potential upside if the trends continue.
Considering that more of us each year are living and working in cities, it stands to reason that there needs to be a growing infrastructure to cope with this demand and as land is at a premium in the premier destinations, it makes sense to see that the trend for 18-hour cities is one that has some mileage.
Outlook for REITs
One established form of alternative investment that gives you the chance to invest in land and real estate opportunities in general, is a Real Estate Investment Trust (REIT).
With so many REIT’s open for investment around the globe, these funds can often serve as a good barometer as to what is expected to happen with certain real estate sectors and property price trends in general.
One of the advantages of investing in land and property through a REIT is that it gives you access to a diversified portfolio of real estate, which is of a caliber and size that that many lone investors would struggle to gain access to without the benefit of pooled resources.
The question is, what is the outlook for REITs in 2016?
Experts appear to be looking forward to what 2016 will bring, especially as this is the year that REITs become separated from financial services and instead become their very own Global Industry Classification Standard (GICS).
It seems that a large number of current REITs are presently trading at a discount, largely due to uncertainty about the timing of interest rate rises, but this is contrast to the fact that the U.S market for example, is seeing an increase in capital flow which is helping to drive prices up.
A good year ahead for REITs?
On the basis that timing is so critical when it comes to investing, although a long-term view will always help to iron out any short-term wrinkles, can we expect to see a good year ahead for land investment and real estate prices in general?
The major cities around the globe are oversubscribed and some observers would suggest overheated too in terms of prices, but there still appears to be the chance to catch a trend with second-tier cities and provided you tread carefully and do your research, 2016 might be a good year for directly investing in land through a REIT investment.
Agricultural land outlook
Not all land-buying opportunities are related to property development of course and there have always been strong trends to follow and evaluate when it comes to investing in agricultural land.
If you take a look at UK farmland for example, values continued to increase through the first half of 2015 and this is a continuation of a long-term trend that has seen steadily rising agricultural land prices over a sustained period of time.
If you take a look at the latest Savills Farmland Values Report you will soon see that although values have risen, it is just 0.2% for the first half of 2015, compared to 0.5% for the first quarter. Prices seem to be stabilising and the increase in prime arable value growth has stabilised and seemingly found a level, after growth hit record levels in recent years.
A new farming dynasty?
If the UK agricultural land market is seemingly offering little in the way of stellar growth if recent trends are a guide, are there other less established parts of the world where there could still be a decent upside in capital growth
Africa could potentially be the new farming frontier and some observers consider Sub-Saharan Africa to be something akin to the promised land for investors, but this is definitely an investment opportunity that can still only be considered as for the brave and deep-pocketed investors amongst us.
Using an established farmland market like the UK as a guide, you can expect to pay an average of $25,575 per hectare when you buy farmland in the UK, whereas you can acquire farming land in Zambia for just $1,800 per hectare at the present time.
The African continent holds the world’s largest proportion of agricultural land with an estimated 1.2 hectares and just shy of 95,000 established farms currently.
A smaller proportion of this total land is currently investable but there is little doubt that Sub-Saharan Africa does have the potential to gain a foothold in a new era of farming in this region of the world. A low-entry price and the continuing creation of new farmland to meet demand, is seeing large-scale farming operations becoming established.
This means that Africa could offer brave investors yield and capital growth that were last seen back in the 1970’s in established farmland markets like the UK and the U.S. Considering that the global population will reach eight billion by just 2020 and nine billion by 2050 (according to UN predictions) it is quite clear that the demand for farm-quality land in areas close to emerging economies, will surely increase over time.
There are already a number of private equity funds which have invested money in farmland in areas such as Kenya, Tanzania and Zambia and speculators have been rewarded with an income yield of 15% to 20% over a five-to-seven year investment period.
These figures certainly compare very favorably when you look at long-established agricultural land markets around the globe but the caveat is of course that mature markets generally have more stability in prices than area like Zambia, which are being viewed as the new farming frontier by some brave investors.
To be successful in agricultural land and farm investment in this region, you definitely have to exercise care and due diligence, as factors such as disputed land ownership and drought are issues that can arise.
If you want a qualified answer to the original question as to whether land can be considered a good investment for 2016, the response would be that slow and steady or even flat growth can be expected in the mature land markets around the world, whereas Africa might just be where the growth will come from, although extreme investment caution is certainly advised.