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Vacant Land Market Update
By John | November 17, 2008
Believe it or not, in these uncertain economic times, demand for certain types of vacant land seems to be increasing. Why?
There is unusual caution among stock market investors, as they not only want to exit the market because of falling prices, they are becoming concerned about the “going concern” issue. Seemingly healthy, profitable companies are vulnerable to the credit squeeze. They owe money to banks and cannot pay off their debts if those banks demand payment, at least not without finding substitute sources of debt financing. And, if those substitute sources are not available, as is frequently the case in this lending environment, they may be forced into bankruptcy. Seemingly healthy companies are going out of existence. With that threat hanging over their heads, stock market investors are heading for the exits. That is a whole new layer of risk that is not normally a concern to market participants.
As an alternative, some of those investors are looking for vacant land to invest in. Why? Because land is solid. It will be there, even during an economic meltdown.
What types of land are they buying? Some are looking for recreation land they can use, as well as treat as an investment. Because of a shortage of lending to support vacant land investments, many of these buyers are paying all cash. In many instances, they are enjoying attractive pricing, as “money talks.” Larger acreage parcels are attractive, as are properties with some kind of water feature.
How about farmland? Unlike recreation land, farmland prices have escalated considerably in the past few years, as commodity prices have exploded on the upside. With recent softness in commodity pricing, the economics of farming is changing. A correction in farmland pricing can be anticipated, so one should be careful about not getting caught up in the expectation that farmland prices can only go up.
Development land has probably undergone the most drastic change in price in recent months. Some finished residential lots are selling for 20% to 30% of the retail values they enjoyed just a couple of years ago. In some “anti-growth” governmental jurisdictions, it takes years to obtain all necessary approvals to create a residential subdivision. In this economic environment, no one is applying for permission to create new subdivisions. One might anticipate a lot shortage at some future date. Some investors are buying up finished lots in anticipation of future shortages, once normal growth and home building resume. But, be aware, one needs patience.
Asset prices are strongly influenced by the availability of credit. Credit has dried up. The prices of many different asset types are heading down. However, governments throughout the world are trying to resuscitate credit. If they are successful, watch for the formation of new asset bubbles. Recreation land, particularly those properties with unique features or popular amenities, could be the next magnet for cash surpluses.
Topics: Rural Land Investment |
November 17th, 2008 at 9:35 pm
I finally decided to write a comment on your blog. I just wanted to say good job. I really enjoy reading your posts.
July 6th, 2009 at 4:33 pm
How soon will you update your blog? I’m interested in reading some more information on this issue.