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Land is just like gold

LONDON — “The best investment on earth is earth,” so said the American real estate investor and philanthropist Louis Glickman.

That’s a message that may have been a little lost in the giddy rush to make a quick buck on the stock market, but in the sobering wake of the financial crash those words have taken on a fresh resonance.

A person with a close-up view of the resurgence in interest is Christopher Miles, a director of Savills for land investment, who advises corporate and individual investors on buying land.

He is seeing two key types of investors: wealthy individuals looking for a safe haven for their money and sovereign funds searching for food security to guarantee food supplies into their countries.

Many Gulf countries that rely heavily in food imports are investing heavily in agricultural land in African countries such as Ethiopia, Zambia and Sudan. This may come as a surprise to those accustomed to associating these countries with famine and drought but in fact, says Miles, a country such as Ethiopia “has got some fantastic land with a lot of rainfall and only certain areas have drought problems.”

What a tragedy for the people of that country that so many die of hunger needlessly.

The other type of investor, wealthy individuals wishing to include land in their portfolio, might be looking at South American countries such as Argentina, Brazil, Uruguay, Paraguay, and to a lesser extent, Bolivia and Chile. “South America’s a really buzzing place — the level of investment there has been huge,” said Miles.

Uruguay in particular, “is a good place to put money — it is the Switzerland of South America.”

“Land,” he observed, “is like gold.”

It’s traditionally been a good hedge against inflation and unlike other assets whose value has dropped substantially in recent years, land in on an upward trajectory.

Looking at the UK market for agricultural land, interest is mainly focused on the eastern counties of England. After a few decades of slump, agriculture experienced an upturn in 2005. This is borne out in the price of land. Prior to 2005, said Miles, the average price for arable land was about £3,000 per acre. Today, that price has more than doubled to £7,000 per acre, and the trend is upwards.

Those kind of values are attracting buyers not just from the UK but from around the world, with a good deal of interest from the Gulf.

“Investors will usually get third party expertise to farm the land; they usually won’t set up their own farming company unless they are big enough”, said Miles.

There are of course some investors who are looking for more than just agriculture. They want to invest in what are known as “strategic” blocks of land near conurbations or major road networks that may in time get development approval for housing or commercial use. They might have taken their cue from John Jacob Astor, America’s first multi-millionaire, who famously said: “Buy on the fringes and wait. Buy land near a growing city! Buy real estate when other people want to sell. Hold what you buy!”

“One of the big advantages of the UK over many European countries is that it is very easy to buy land — there a very few restrictions”, said Miles.

“Effectively”, he explained, “you are only taxed on income. There’s no wealth tax where you are taxed on how much your land is worth — there’s no rates payable on agricultural land so there’s no business rates — so it is quite benign in that respect.”

Miles observed that the attractions of agricultural land had been over-looked partly because compared with the appreciation rate of development land, the gains seemed insignificant pre-2005.

During the ten-year flat period in agricultural land values, the value of development land surged from about £50,000 per acre to £1 million per acre, depending on the location. What is certain is that today as in past centuries, land is seen as a great ‘store’ of wealth.

As former US president Franklin Roosevelt put it: “Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”

And safety seems like a very attractive option to those looking for a secure berth for their wealth.

It’s no secret that since the Arab Spring the London residential housing market is experiencing a boom as Arab investors put their money into bricks and mortar. A similar picture, though on a much smaller scale due to limited supply is being seen in the agricultural land sector.

In these tumultuous times, both politically and economically, it’s not surprising that investors are seeking prudent and safe vehicles for their money. “Land is not something to speculate in — buying and selling quickly — it is not like shares — it’s a long term investment,” said Miles.

He added: “You tend to get slow troughs and slow peaks — it’s not volatile. But that is one of its great attractions. For rich individuals it’s no different to the Victorian days when people made a lot of money out of industry or trading and put it into land. A lot of those families are still very rich today because they’ve got their money locked into land.”

Maybe Mark Twain summed it up best when he said: “Buy land — they’re not making it anymore.”

— business@khaleejtimes.com