Key Post: Buying Greenfield Land with a View to Rezoning

A

aBitTooFar

Guest
At The Money Fair in the RDS over the wekeend there were several companies which sold plots of greenfield land. The price was between €40 and €90 per metre squared. The areas being sold are supposedly ripe for rezoning into residential ammenities.

After visiting three companies and spending considerable time talking to the representititves from these companies I decided to buy one of these plots. I am in my 30s and can afford to wait for a payback and can also afford a complete loss of the €16k I promised to fork out. I have 2 weeks in whcih I can change my mind without penalty.


My questions are

(a) what pitfalls should I be aware of?
(b) how can I best very the company?
(c) are there regulations controlling statements made by these companies in relation to expected payoff and timeframe? (the payoff should the land be rezoned was said to be 10 to 15 times initial investment)


FYI, I bought in Chicksands, Shefford (Mid-Bedfordshire, approx 25 miles north of London City) from United Land plc (UK).

Thank-you.
 
A

aBitTooFar

Guest
Sorry, question (b) should be

(b) how can I best vet the company?
 
T

Tommy

Guest
This sounds like an incredibly risky, if not foolhardy, proposal. If the land being sold has a realistic potential of generating a rezoning windfall, how come the guys selling it are not holding on to take the profit themselves, or indeed selling it to the highest bidder? Selling it to the public in the form of shares seems like an extremely bothersome way to sell an asset unless there is more (or less) going on than meets the eye.

Even if the promoters are whiter than white, this would not of itself make this proposal a good investment. If they have a chequered history, the guys pulling the strings will surely be smart enough to cover their tracks by nominating others to front the operation.
 
A

aBitTooFar

Guest
Risk and reward are proportional in all investments => no risk no reward, high risk => potentially high reward. One reason why the investors wouldn't hold to the land and seek rezoning in their own right is that they don't believe they would get rezoning. Another reason is that they know that they are getting a 100% return (since when they bought the land 2 years ago) by selling the plots at their current price and they lessen their risk by retaining a minority interest in the future rezoning.

Buying an investment property in Dublin, Manchester or Budapest may not have a radically different risk to reward ratio.
 
N

N0elC

Guest
Plus the initial capital outlay is far lower, and unleveraged.

You might ask them how the plots at Lyneham, Wiltshire are going. I understand that investors have not yet received their certificates of ownership despite having stumped up in the Spring time.
 
H

harto1

Guest
The UK based magasine Homebuilding & Renovating had some interesting articles on this subject at various times during the year. There was also a documentary on tv last year sometime but I don't remember which station aired it. Basically they all seem to indicate that it is one big scam.
"According to current uk government planning policies, the majority of greenbelt land in the uk has limited chance of getting planning permission for development in the future. Generally, the policy is instead to concentrate on developing brownfield sites." It's a very general statement but in my opinion certainly raises a warning flag.

Here is a link to one of the articles in the magasine.

www.homebuilding.co.uk/La...View&ID=14

Do your research before committing to anything.
 
T

Tommy

Guest
Any investment property worth its salt in Dublin, Manchester Budapest or anywhere else will normally be capable of generating some degree of financial return in the form of rental income. This means that in the absence of capital appreciation, at least the investor can expect some form of payback (even if painfully slow) on their initial investment. Buying a plot of ground in the hope or expectation of rezoning is by its nature a more risky proposal in that the asset does not have the potential to generate income without a positive rezoning decision or some other favourable event. Of course all bets are off if one can be sufficiently certain (either through the possession of inside information or clever interpretation of planning trends, precedents etc) that a certain site or area is to be rezoned. That is how professional development land speculators become richer. However, without such knowledge, the amateur investor dabbling in this sort of venture (especially overseas) is buying a pig in a poke. The risks are intensified when it is a middleman (who may or may not have any long-term interest in the success of the investment) who is calling the shots.
 
R

rainyday

Guest
I'm stunned. I really can't understand how anyone would sign up for this. I'm hoping that you have only paid over the £750 deposit mentioned on their site, so you can cut your losses now. If by chance you have paid over €16k by cheque, I would suggest that you cancel this cheque now in the hope of protecting your investment.

Note that I don't claim to be a financial or investment expert, so this is not expert advice. To me, this is just common sense.

It is not a case of the risk/reward ratio. Risk is not inherently bad, which is it analysed and managed appropriately. Getting into an investment like this without independent expert advice means that you are not managing the risk.

The kind of things that would worry me are;

- What is the tax impact of this investment?
- What is the currency risk involved?
- What is the real market price of undeveloped land in those locations?
- What are the dependancies on your neighbouring plot-holders? What happens if your neighbour doesn't join in the plan to apply for permission, or to eventually sell the land? WHat happens if none of the plotholders are willing to take up the roles of Chairman & Treasurer of the plotholders association?
- Will a developer be interested in the complexity of buying off a large group of plotholders, when he can buy the field next door from the single owner.
- Would you trust an agent who attempts to spin the forthcoming closure of a major employer (RAF Lyneham) as a positive change for one of their other sites?
- What did the independent experts at the Money Show have to say about investment?
- Will you get independent legal advice before you hand over the final cash amount?
- Why do they show graphs of the increase in residential land values, when they aren't actually selling residential land?

etc etc. My non-expert recommendation would be that you get out now, unless/until you can give yourself satisfactory answers to all these questions.
 
A

aBitTooFar

Guest
Thanks for the replies (even though they were mainly negative).

Rainyday, I have 12 days during which I can get the £750 back.

- What is the tax impact of this investment?
#Irish CGT => 20% of speculation profit
- What is the currency risk involved?
# same as investing anywhere outside the euro zone
- What is the real market price of undeveloped land in those locations?
# I believe this is about £160k (maybe less when you factor in affordable housing requirements and land set aside for services eg roads, roundabouts, transformer stations etc)
- What are the dependancies on your neighbouring plot-holders? What happens if your neighbour doesn't join in the plan to apply for permission, or to eventually sell the land?

# This is documented in the Plot Holder's Association's Articles of Association. I will get a solicitor to look into those. A problem I have at this point is that oddly it will cost £300 to get these procedures (it is refundable if I go ahead and stump up the balance). From what I was told about this it seems to be well covered.

What happens if none of the plotholders are willing to take up the roles of Chairman & Treasurer of the plotholders association?
# Dunno? But there ae 100 plots per phase and this is made up of 70 different people ... all that is needed is 4.
- Will a developer be interested in the complexity of buying off a large group of plotholders, when he can buy the field next door from the single owner.
# Yes, because the field next door is not adjacent to exisitng development and is therefore highly unlikely to get rezoned.
- Would you trust an agent who attempts to spin the forthcoming closure of a major employer (RAF Lyneham) as a positive change for one of their other sites?
# Don't understand what you're getting at here.
- What did the independent experts at the Money Show have to say about investment?
# Good question. They suggested posting a question to AAM :)
- Will you get independent legal advice before you hand over the final cash amount?
# Yes
- Why do they show graphs of the increase in residential land values, when they aren't actually selling residential land?
# Because they are hoping to get it rezoned as residential therefore they are entitled to show this graph.

NOelC, apparently Lyneham is doing "very well". I am short on details but I was led to believe that it has passed Local Council Deposit stage of the planning process ... must find out what that means.

harto1, thanks for the very good link. The Chicksands scheme I am talking about is not Greenbelt ... it is greenzone aka agricultural. Greenbelt is more difficult to get rezoned.

Tommy, it is all about risk/reward ratios and your argument about small regular yields with properties in Dublin, Manchester or Budapest doesn't render my argument invalid.

United Holding is regulated by the LIA (Land Investment Authority).

Finally, I can still be convinced to pull out of the deal.
 
R

rainyday

Guest
- What is the tax impact of this investment?
#Irish CGT => 20% of speculation profit
Are you certain that UK CGT would not apply? Note that I'm not a tax expert, but I understand that these are complex matters. Do you have a written opinion from a tax expert that you can sue confirming that only Irish CGT will apply?
- What is the currency risk involved?
# same as investing anywhere outside the euro zone
Technically correct, but fairly useless answer. It sounds like you haven't given significant thought or research to the future of the Sterling/Euro relationship. This relationship will have a significant impact on your investment return.

- What is the real market price of undeveloped land in those locations?
# I believe this is about £160k (maybe less when you factor in affordable housing requirements and land set aside for services eg roads, roundabouts, transformer stations etc)
I don't understand - £160k for what - an acre? a hectare? a square metre? And please advise on the source of your information on prices?

- What are the dependancies on your neighbouring plot-holders? What happens if your neighbour doesn't join in the plan to apply for permission, or to eventually sell the land?
# This is documented in the Plot Holder's Association's Articles of Association. I will get a solicitor to look into those. A problem I have at this point is that oddly it will cost £300 to get these procedures (it is refundable if I go ahead and stump up the balance). From what I was told about this it seems to be well covered.
I don't understand how you are confident that 'it seems to be well covered' but you can't specifically answer the question as to what happens. Believe nothing that you were told by these guys (who obviously have a strong vested interest in selling to you).

- Will a developer be interested in the complexity of buying off a large group of plotholders, when he can buy the field next door from the single owner.
# Yes, because the field next door is not adjacent to exisitng development and is therefore highly unlikely to get rezoned.
I've never heard of 'adjacent to existing development' as being the primary reason for a rezoning. It may well be one small factor, but it would not be the main reason. It really does sound like you are swallowing the sales person's line, hook, sinker and all.

- Would you trust an agent who attempts to spin the forthcoming closure of a major employer (RAF Lyneham) as a positive change for one of their other sites?
# Don't understand what you're getting at here.
Do you believe the implication on their website that the closure of RAF Lyneham is likely to improve land values in those areas?

- Why do they show graphs of the increase in residential land values, when they aren't actually selling residential land?
# Because they are hoping to get it rezoned as residential therefore they are entitled to show this graph.
But that is not the graph that they are showing. The graph doesn't show the price increase in rezoned land. It shows the price increase in residental land. They might as well show the rainfall chart for Ulan Bator for all the relevance it has to the purchase.

NOelC, apparently Lyneham is doing "very well". I am short on details but I was led to believe that it has passed Local Council Deposit stage of the planning process ... must find out what that means.
And it wouldn't by chance have been the salesman who told you this, would it? Yes - you really, really should find out what this means.

United Holding is regulated by the LIA (Land Investment Authority).
Who or what are the LIA? Google can't find anything about them

Finally, have a look at this expert review of some similar schemes.
 
A

aBitTooFar

Guest
Thanks Rainy,

you may be correct on the taxation front. I now thnk that because there is a Double Taxation Agreement between Ireland and the UK that I would be liable for the larger tax liability on making a a speculative profit and I beleieve that this is 20% in Ireland and 40% in UK, so I would pay 40%. That certainly reduces my interest.

The currency issue is nothing peculiar to this scheme. Nobody knows how currency rates will change. This is not a useless answer. Have you ever bought anything outside your local currency?

The figure of £160K is per 400m2 plot. A 400m2 plot would allow for a 4 bed semidetached house (I live on a 4 bed SD on 400m2). Look at the property prices near Luton. A builder friend of mine talks about it costing about £800 per metre squared to build so a 125 m2 house would cost £100K to build.

I didn't say I am happy (yet) about the operating procedures of the Plot Holders Association. I need to get legal advice.


You won't easily get outline planning permission for a field within a field. Villages and towns grow from their perimeters not with large spaces in between them which are filled in later.

The graph shows price increase in residential land. I would be buying greenfield land with a 'hope' to having it become residential zoned. So, the graph is relevant.

The link is the one hart01 already gave and it discusses "greenbelt" land and not "greenfield" land which is easier to get rezoned. Greenbelt is means that there is a desire to have the land retained as such eg for scenic beauty or a rare snail.
 
A

aBitTooFar

Guest
LIA = Land Investment Association

www.landinvestmentassociation.com

BTW NOelC, it's Chicksands, Shefford (near Luton mid Bedfordshire) not Lyneham that I am buying. Lyneham is on the company's website but hicksands isn't on their website yet.
 
N

N0elC

Guest
Hi abittoofar.

Why didn't you buy at Lyneham ? Are there no plots left there ?

My own view on is that there is a decent probablity in the next 10 years that the land gets rezoned because of its location, demographic trends and an active lobby group in the form of ULH with still a significant private interest in the land applying "professionally" for planning permission on our behalf. It may never happen and it could be a write off or it could be rezoned in that time and the return could be substantial.

Come back in ten years time, and we'll look into it again !
 
T

Tommy

Guest
United Holding is regulated by the LIA
After reading the LIA's website, I could find no reference whatsoever to any regulatory function, statutory or otherwise. It appears to be some sort of representative body for land vendors. There is a world of difference between regulation and representation.
 
A

aBitTooFar

Guest
NOelC, Lyneham has sold out. Did you buy into it? If so, how is it going?

Tommy, the same thought crossed my mind. I send off a list of questions to the Land Investment Association asking amongst other things are they independent (financially and personally) of ties to United Land Holdings. I will let you know what they come back with.

I also mailed the local council asking various questions.

Thanks!
 
R

rainyday

Guest
you may be correct on the taxation front. I now thnk that because there is a Double Taxation Agreement between Ireland and the UK that I would be liable for the larger tax liability on making a a speculative profit and I beleieve that this is 20% in Ireland and 40% in UK, so I would pay 40%. That certainly reduces my interest.
Just to be very clear, I have no expert knowledge of the taxation issues, but I do recommend that you get expert independent advice on this.

The currency issue is nothing peculiar to this scheme. Nobody knows how currency rates will change. This is not a useless answer. Have you ever bought anything outside your local currency?
There is a huge difference between buying something abroad (based on a known current currency rate) and making an investment in a foreign currency, where the success of the investment is dependent on the future rate. I recommend you research this, and consider the impact of (for example) the UK devalueing to join the Euro, or a new Tory government on your investment.

The figure of £160K is per 400m2 plot.
Is this a typo? You mentioned £16k in your original post. Are you saying you are paying out £160k for a 400 m2 (approx one-tenth of an acre) plot?

The graph shows price increase in residential land. I would be buying greenfield land with a 'hope' to having it become residential zoned. So, the graph is relevant.
So what you want to see is a graph that shows the increased prices for rezoned land, not residential land itself.

I send off a list of questions to the Land Investment Association asking amongst other things are they independent (financially and personally) of ties to United Land Holdings.
I would place little store in whether they are 'independent' or not. The real issue is whether LIA have any regulatory role (they don't) and whether they will help you if it all goes pear-shaped (probably not). Otherwise, they aren't adding any value for you or your investment.
 
A

aBitTooFar

Guest
Rainyday, if you buy something in a different currency on your visa and you don't know how much you will be charged. Would you apply the same logic in saying that you should buy shares in US dollars or in Sterling?

The figure of £160K is the a conservative current market value of a 400m2 plot (factoring in affordable housing and roads), with residential status, in the area. The outlay to a similar site with greenfield status is £16K.


What is the difference between a graph showing the price for land rezoned too residential status versus one showing land with residential zoning? To my mind there is little or no difference.
 
R

rainyday

Guest
Rainyday, if you buy something in a different currency on your visa and you don't know how much you will be charged.
Generally, you do. You know what FX commission your credit card company charges. You know what the current rate is. So you know within 1%-2% of how it is going to come though on your cc bill.

Would you apply the same logic in saying that you should buy shares in US dollars or in Sterling?
You are misunderstanding me. I never said that you shouldn't proceed with this investment because it is in Sterling. Indeed, I have some USD investments myself. What I said was that you should research & understand the impacts of currency movement on your investment.

The figure of £160K is the a conservative current market value of a 400m2 plot (factoring in affordable housing and roads), with residential status, in the area. The outlay to a similar site with greenfield status is £16K.
OK, so just to be absolutely clear, you are telling me that the prices that United Land are charging is in the region of £16k for a 400m2 (approx 1/10 of an acre) plot - Correct?

What is the difference between a graph showing the price for land rezoned too residential status versus one showing land with residential zoning? To my mind there is little or no difference.
The graph isn't showing the price for land. It is showing the investment return. Unfortunately, it is showing the investment return for another type of investment. It does not relate to your investment (purchasing of unzoned land). It is just another example of how the sellers are trying to blind you with irrelevant data.
 
A

aBitTooFar

Guest
Rainyday (and anyone else reading, which is unlikey at this stage),

1 - the full price to me of a 400m2 plot (=0.1 acre) (greenfield) is €16k (and not Sterling as I previously indicated).

2 - the quoted current market value of the 10 acre phase which is spilt up into 100 x 0.1 acre plots is £16m if it has residential zoning. This is divided pu equally between all participants in the phase hence the value of £160K.

BTW, I agree with you that LIA has no regularity authority. There are only 6 hits using Google and they all relate to United Land Holdings, so they are unlikely to be independent also!
 
Top