Despite all the ups and downs of the real estate market, the excitement and apprehension and the greed and fear, I believe that owning property, over the long term will bring most people the best possible investment returns.
And in particular, owning land.
Mark Twain shares this idea with us in a famous quote – “buy land, they’re not making it anymore.”
In his time, this quote would have been entirely accurate. These days, through herculean and very expensive feats of engineering, new land can be created to extend boundaries by reclamation, as has occurred in places like the tiny island nation of Singapore and very ambitious real estate developers in Dubai.
For most of us this axiom remains true – there just isn’t any more land. As the population in each of our cities and nations expands, they need somewhere to live. And that means ever increasing demand for land.
Australia has some of the most stringent and complex rules and laws in place which restrict the supply of new land on which to live. Our Federal Treasurer Scott Morrison has today recognized this in a speech on housing affordability where he is urging the States to “remove unnecessary planning regulations to improve housing supply” citing them as a major reason why prices keep rising and people are struggling to get in to the housing market.
Finally, someone in Government is talking about one of the pivotal issues that have helped run up prices of Australian real estate.
Now they just need to convert the “chat” to “do”. Otherwise it’s just noise.
I thinks Mr Morrison will struggle with entrenched systems, thought processes and the industries built around land supply – the myriad levels of local & state government, consultants on everything from traffic, to landscaping and water flow. The only way the Federal Government can change this is to take land supply and planning away from the States and make it a Federal responsibility – and a critically important policy directive for the future of our nation.
I’m not even sure it is legally, let alone politically possible?
And in the meantime, what do you do about investing in land, and if you can, should you?
By land, I mean real estate. It’s not so much the amount of the land, but where that land is located, which will have the largest effect on its future capital growth.
If you aren’t convinced about how good land can be, have a look at these two recent stellar examples.
Everywhere I go, my real estate radar is up. In new towns, cities and countries, if I disappear, my wife knows to find the nearest real estate agents office – I’ll be the one staring at the properties in the window. I’m always looking to learn.
Closer to home, my family enjoys getting ice-cream from a tiny place in Albert Park in Melbourne, about 3km from the CBD. Around the corner from the shop, I noticed a tiny piece of land with a huge For Sale sign in front of it. The lot was sub-divided from the back of the shop, facing a side street. What struck me as unusual and interesting was the size of the land – it was 64sqm – yes – 64sqm. That is 10m wide by 6m deep. And it had plans approved for a three level townhouse.
I thought it had to be just about the smallest block of land I had ever encountered. But the really big shock was the price at which the lot sold at public auction recently – $1.3 million dollars.
Yes, 64sqm for $1.3 million.
To put that in to context, a “regular” sized 400sqm allotment that you might find in most new land estates would be priced at $8.1M – if of course it was the same price per sqm. Clearly, the Albert Park location (it’s a bit like Subiaco but by the beach) is far superior to a new land estate 20-30km from the CBD, hence the much higher price.
And here is the final kicker. The property that the 64sqm was excised from was originally 189sqm in size with a two level building. It last traded in 1980 for just $94,000. So the current owners, still have the original building (it’s a renovated café with an upstairs office) on 135sqm of land and a cool $1.3M in the bank.
The second example to share with you on why buying land can be very profitable is this – 64HA of land bought by a farming family in 2008, in Tarneit, 20km west of Melbourne CBD. It was purchased by the family for $2.5M. It is now worth about $50 million as a site that can be subdivided in to about 800 new lots.
That’s a 2000% return in just 8 years.
The land has become valuable because of its proximity to the CBD, an urban rezoning, the services reaching the site and the strong demand for affordable land from the burgeoning population of a fast growing city.
I would suggest to you that Mark Twain’s advice holds today, even with land creation engineering marvels.
If you combine Mr Twain’s axiom, with my personal golden rule of real estate:-
“Buy the best quality property you can reasonably afford and never ever sell it. Repeat when possible.”
Then you will likely become wealthy over time.
If that is a part of your desire, then find a way to buy some land, or if you have some, some more.
As soon as you can.
Because they’re not making any more.