Why Investing in Land Is a Smart Choice
Given the recent volatility in global markets, we wanted to revisit the investment characteristics of land in today's context: stability, inflation hedging, and attractive historical returns to name a few.
Limited Supply: Land is a finite resource. As the population grows and urbanisation continues to expand, the demand for land increases, while the supply remains limited. This scarcity of land can cause its value to rise over time, as it becomes a coveted resource. As Mark Twain once said, "Buy land, they're not making it anymore."
Tangible Asset: Land is a tangible asset that can provide a sense of security and stability. Unlike stocks or bonds, land is not subject to the usual market volatility or fluctuations.
Diversification: Investing in land can provide diversification to a portfolio that may already include stocks, bonds, and other financial assets. Real estate, including land, tends to have a low correlation with other asset classes, which means it can provide a hedge against market volatility.
Value Appreciation Potential: As demand for land increases, its value may appreciate over time. In examining historical return profiles for land, we see that they have, on average, outperformed traditional equity, fixed income, and other alternative investments over multiple market cycles.
Here's an example: The Plan Change 6 (PC6) in Drury, south of Auckland, involves rezoning approximately 83.05 ha of Future Urban Zone (FUZ) land to residential zones. All properties in PC6 area were zoned Rural until 2015. By February 2020, it became fully operative and properties in this area experienced a significant increase in sale price.
Our analysis finds a significant increase in value as land progresses through the land zoning spectrum as follows:
165%: When rural-zoned land is changed to Lifestyle zone, there is an increase in value of $0.5m/ha or 165%.
225%: When rural-zoned land is changed to Proposed FUZ, there is an increase in value of $0.7m/ha or 225%.
400%: When rural-zoned land is changed to FUZ, there is an increase in value of $1.1m/ha or 400%.
690%: When rural-zoned land is changed to Proposed Live Zone, there is an increase in value of $1.9m/ha or 690%.
1035%: When rural-zoned land is changed to Live Zone, there is an increase in value of $2.6m/ha or 1035%.
Investing in land can be a great way to diversify your portfolio and build long-term wealth. However, it's essential to do your research and due diligence before investing in land, as factors such as location, zoning regulations, and environmental factors can all impact the value of the land. This is why Fortland’s land investments are strategically located in areas with high demand, in proximity to urban centres and undergoing urban transformation, resulting in the potential for considerable increases in value over time.
Book a meeting with our friendly team today for an overview of Fortland and learn more about how we invest in land.
Source: Urban Economics
Note: Nothing in this article and case study shall be taken or interpreted as any guarantee regarding the outcome, or likely outcome, of the projects contemplated in this article. It is an example only for illustrative purposes. Fortland land funds are open to wholesale investors only as defined under the Financial Markets Conduct Act 2013.