As a landowner, you may be well aware that you are sitting on a very valuable asset, especially if your land is suitable for residential housing development. Our national housing shortage means that developers and house builders are now looking everywhere for land to build new homes on. For landowners keen to sell, this is good news. With demand being exceptionally strong, land prices have never been higher, particularly in South East England.
Having decided that now may be an excellent time to realise the value of your land holding, your next step is to do a bit of initial research. Selling your land can be a time consuming and expensive experience and yet the financial rewards can make it well worthwhile. Here’s how to approach it.
Do your homework
To get a good idea of what your land might be worth, you might start by looking at comparable sites and/or by having a site specific valuation carried out. Establishing an exact value is tricky since land doesn’t sell that often and every site has its own unique characteristics.
Even at this early stage, it’s worth being very aware of the possible tax implications of the proceeds of sale. Make sure you consult a competent tax accountant to minimise your liability for Capital Gains Tax and Inheritance Tax and protect your investment.
If someone is interesting in purchasing your land holding, don’t be tempted to accept the first offer, and do look around for other interested parties to see what they would offer. Specialist land agencies such as Land & Brand New Homes are a useful ally in these situations. They will approach a range of potential buyers on your behalf in an effort to help you get the best price for your land.
Another factor that majorly affects the value of development land is the basis upon which it is sold. There are 3 options here:
- Subject to planning
- With planning permission
Selling on an unconditional basis
The quickest but arguably also the cheapest way to sell your land is on an unconditional basis. Your purchaser will take the full risk of buying the land without planning permission and without any assurances that such permission would be granted and under what conditions.
Even if you are absolutely sure that there would be no problem obtaining planning consent, there are still important questions hanging over the number of dwellings that would be permitted to be built, any infrastructure improvements the council might insist on, and the time it would take to get consent. And, of course, there are many incidences where planning permission is unexpectedly not given at all.
Any potential purchaser will have considered all these uncertainties, using them as a basis for arriving at what he will consider to be a fair offer price. This is likely to be set somewhere between the site’s value for its current use and what it would be worth with planning permission.
Selling on a ‘subject to planning’ basis
One way to remove the risk factor from an unconditional sale – and in turn to increase the offer price – is to draw up a ‘conditional contract’ or an ‘option agreement’. The landowner grants the developer the option to buy the land within a given time, during which the developer will attempt to secure planning consent. If permission is granted to the would-be buyer’s satisfaction, he can then exercise his option to buy the land at the agreed price. Otherwise, he could simply walk away.
While it is common for house builders to buy land this way, this is a lengthy process with an uncertain outcome. Preparing a planning application for a housing development and the process to eventually get permission can be a difficult and convoluted journey, often involving community issues and local politics.
For the developer, there’s now no risk involved in having their offer accepted. In fact, he may decide to hedge his bets and have several irons in the fire, ultimately proceeding with the deal that suits him best – which may not be yours.
Selling with planning permission
Achievable land values are generally highest when the plot has existing planning permission. You can do this yourself but it takes a bit of time and potentially quite a large sum of money – typically in the region of £100-300K.
The best strategy is to secure outline planning consent that approves housing development on the site in principle, with details to be decided further down the line. This should provide the certainty that developers are looking for, while leaving enough flexibility for them to impose their own specifications in terms of the proposed mix of housing stock.
Going one step further, you can take steps to make your site ‘shovel ready’, meaning technical reports about ground conditions and drainage have been carried out so that building work can start without delay. This can hugely appeal to house builders who are under time pressure to get construction underway.