Raw land is a “Hands-off” investment. In fact, land is the ‘raw material’ for just about every property development. As a budding investor, you need to know just what kind of land is needed for an upcoming project:
Is it the right size? The project may not be big enough to meet demand around the area. The individual unit size may or may not meet the demands of the demographic it is attempting to serve.
Is it the right type? Is the land fit for agricultural projects, or is it better suited for industrial ones? Are there any environmental factors that may hinder project growth? If it’s a residential project, does it connect well with surrounding facilities (public transport, hospitals, etc)?
Buying land is usually significantly cheaper while it is underdeveloped than land that has a useable structure constructed on it. It is clear that land is the raw material of any property development. Thus, the saying “the best investment on earth is earth (land)”.
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Land is always a scarce resource as it is non-produceable. Hence, developers are constantly on the lookout to increase their land banks.
Acquiring the right type of land (agriculture, industrial, residential, commercial, etc) and the right size (density, plot ratio, type of usage and development, individual unit size, etc) will ultimately help decide the potential value of the land.
Right Location?
Is it at the right location? The area could already be matured, which could lead to a steady interest. If it’s an upcoming developing location, there may be a spike in valuation over time.
Our strategy includes land acquisition for property development in Hong Kong (HK), probably one of the most challenging markets in the world. Population density, land scarcity, and off-the-charts growth make it an extremely complex one.
However, we have managed to gain a foothold with a strategy of land bank acquisition, i.e., acquiring small tracts of land with an eye to future development, taking into consideration the political, social, environmental and cultural realities of HK.
When we were first introduced to land acquisition opportunity in HK, we felt excited to explore more and eventually got involved due to HK properties which are ranked among the most expensive in the world. And with land scarcity, it all boils down to capitalising on demand and supply.
Below are some key indicators that will be used to decide if the stipulated land will be suitable for this strategy.
As a rule of thumb: Islands with scarce build-able land and high population density with high PPP or FDI will never go wrong.
Please keep in mind the information below is an example to help you understand details on a new level and I would like to remind you that every opportunity is different. You must always do your own research before you commit anything.
Location, Political System And Economy
With a landmass of 1,104km2 and a population of over seven million people, HK is one of the most densely populated areas in the world. As of 2018, HK’s gross national income (GNI) per capita is US$67,810 Purchasing Power Parity (PPP) dollars and its gross domestic product (GDP) per capita is US$64,597 PPP, according to the World Bank.
Under the principle of “One Country, Two Systems”, HK has a different political system from mainland China. The law of HK is based on the rule of law and the independence of the judiciary where the constitutional framework is provided by the HK Basic Law.
The Lands Department in HK is practicing the British system, which is common law and familiar to us when we invest.
Hong Kong has a free market economy and it is highly dependent on international trade and finance.
Alternative To Land Acquisition
One of the alternative proposals to land acquisition is leasing the land from landowners for a certain lease period. Leasing land may also support sustainable project development since the lands need to be returned to the landowners at the end of the lease period in a condition similar to its original form without considerable environmental degradation.
When the land is leased then anybody who has to otherwise give up land or livelihood will be compensated for its growing valuation over time. In this model, the landowner lends her land to the government for a steadily-increasing rent, or through an annuity-based system.
In any case, how do we contrast this with what we are doing in Malaysia?
Despite having already established viable businesses in more than 10 countries, and being able to show healthy profits in most of them, I am still bullish about the place I call as home. I believe there are many areas where both local and foreign investors can invest their funds for very healthy returns on investment.
We tend to believe that we need a lot of money to invest, but it’s not always true. But it can be done.
You have to be able to make different kinds of investment, like investing time in doing proper research and learning about markets, that will help you make well-informed decisions and taking a calculated risk. Be consistent. Your attitude towards small things should be the same as your attitude towards big ones.
Some “good” and “bad” qualities vary from one community to another. If the investor knows the local community, they could know better which parts of the land or town are less or more desirable.
It is always smart to rent in a new community before committing to purchase a land for investment. Sometimes, renting allows the investor to become familiar with the location.
“Location, Location, Location” Makes All The Difference
“If you are avalanched by adversity, hold on. Don’t give up; rebuild. Make decisions and stick to them.”
About the Author
Max Shangkar is group CEO of Max Capital Management Holding Ltd and an expert in global project management consultancy. He is also the author of the best-selling book Investment Strategies for Global Real Estate.
He propounded the market-proven investment strategies of Property Investment Life Cycle and Business Investment Life Cycle that educated over 6,000 Global Investment Community members to invest in property projects and businesses in over 10 countries.
