Savvy strategic land investing now must consider climate change.
Two factors face land investors and developers: How to minimise their impacts on the environment, and how to mitigate potential damage from a changing climate.
The year 2012 was the wettest on record for the UK, according to the National Flood Forum, a coalition of community groups throughout the country. The organization warns that flooding is possible anywhere – flooding in never-flooded-before West Sussex in June of that year provides an instructive example – and should be considered a top emergency priority.
Part of what is so surprising about this is the drought that preceded these floods by mere weeks; widespread hosepipe bans were in place as recently as March 2012. But by the end of the year, nine people had died from excess rains and runoff. Such is the experience of weather volatility under conditions of climate change.
Meanwhile, the UK is undergoing a housing crunch that calls for no fewer than 4.4 million new homes to be built by 2016. Housing traditionally taxes both the demand for water, a problem during droughts, while concurrently establishing hardscape land (surfaces that do not naturally absorb rain) that exacerbates storm water runoff.
The Committee on Climate Change (CCC), an independent group that advises the UK government on means to prepare for and manage climate volatility, stresses that land use planning should be factored into national policy. “Climate risks appear not to be fully incorporated into some major strategic decisions,” the organization said in a report titled Adapting to Climate Change in the UK/Progress Report 2011. “Embedding climate change more fully into decision making could reduce future adaptation costs, such as building new flood defences and maintaining existing defences, and also ensure that climate risks are appropriately balanced against other risks and benefits.”
Of course, England is cited worldwide for the construction in the 1970s and 1980s of the Thames Barrier, which prevents flooding in London during exceptionally high tides and storm surges. Used only once each year up until 1989, it was closed six times in 1990, 9 times in 1993, 6 times in 1999, 10 times in 2000, on 15 occasions in 2001, 19 times in 2003 and 11 times in 2007. The Barrier responds to ocean conditions, a different dynamic but also a function of a warming planet. This is a country that can mount heroic efforts to deal with natural forces, and perhaps similar tasks can be accomplished throughout the country.
CCC notes that water supplies are near their lower limits in some regions, and are more vulnerable to patterns of development and demographic trends. To mitigate this, they recommend several measures be taken:
• Improve water use efficiency, which can include lower-flow bath and kitchen fixtures, and the use of rainwater catchments for landscape watering and other uses. Up to 45 percent of water resource zones will be at risk of shortages by 2035 if remedial actions are not taken.
• Reduce building vulnerability to flooding by situating new development appropriately and by designing homes that can withstand flooding when it occurs.
• Design water absorption systems (bioswales and rain gardens) that naturally absorb storm water in situ that precludes flooding.
The UK Green Building Council certifies construction of residences and commercial structures according to the LEED (Leadership in Energy and Environmental Design) standards used around the world. The organization also celebrates the UK government’s Code for Sustainable homes, introduced in 2006, which calls for “zero carbon” homes by 2016. Hundreds of buildings in the country have been certified in the LEED system while many others apply these standards without applying for certification. The net result includes development of materials and techniques that often becomes standard for all construction.
To those involved in land investment, a conversion of unbuilt to built property is typically the goal and end result. Building according to LEED standards may be exactly what the market calls for, although the bulk of homes and businesses that achieve certification tend to exist at the higher end of the cost/value spectrum. These structures operate at lower energy costs, so a longer-term perspective by buyers might drive more sustainable building methods; ROIs are achieved anywhere between three and 20 years into the future, depending on technologies used.
Investors who are considering land as an alternative investment should consider also the questions of sustainability. Be sure to discuss it with experts, just as any financial decisions should be weighed with the advice of a personal financial advisor.
With demand for housing at an all-time high in the UK, it is easy to become enthusiastic about land investing. Just be careful about over-exuberance.
The data analytics company Hometrack showed an interesting and perhaps alarming trend (depending on how you look at it) in home sales in May 2013. While the sales agreements for the month were up 8.2 per cent, new homes being built were only up 2.8 per cent. Does this outsized demand level not only push prices upward, but up into a real estate bubble once again?
Certainly, to Londoners that may seem to be the case. Central London home values recovered very quickly from the financial crisis and its aftermath in 2007-2010. But much of the demand driven there in that pricey market is a function of it being London: home to the international well-to-do, many of them from other countries who are here seeking a more stable society and economy. The same phenomena are observed in international cities that include New York, Tokyo, Hong Kong, Sydney and Melbourne.
But contrast that to home values in the rest of England and Wales. In the prosperous South East, prices are up but far from the levels seen in London. The Midlands and Wales have continued to see slow growth. The Funding for Lending scheme from the UK government, and historically low interest rates from the banks, are helping create some of that demand.
This is not surprising considering how there is wide concern about a third recession in 2013. In the economic seesaw seen over the decades, worries about the economy reduce purchasing of all kinds. When prices are low enough on such things as real estate, property fund management teams often swoop in to buy at the lowest prices in anticipation of a solid growth in asset value in the near term.
Land speculation is rarely a beneficial phenomenon in the long term. It generally means land prices rise above the productive value of the land itself – for example, when £10,000 per hectare is the going rate when under any zoning circumstance (agricultural, commercial or residential) the land cannot produce that much value. When the bubble – more a psychological matter than good sense investing – bursts, lenders to speculators cannot recover the loans, which then creates serious problems in the financial markets.
It should be noted that land speculation typically and quite obviously occurs when demand outstrips supply. And in the UK, where 130,000 fewer homes are built each year than are needed, that indeed is the case. What holds back speculation from happening now is the recent experience of a burst bubble – this factors heavily into private investor and financial institution thinking. No one wants a repeat of 2008.
No one – not governments, not homebuyers and most investors – likes a rapid rise and rapid fall. This kind of volatility leads to big winners, big losers and a generalised instability. The more solid land investment operates on a different model, where reasonable and logical strategies lead to a slower degree of growth.
So where do land investors wanting capital growth find those solid returns? Real estate investment trusts (REITs) have had at best middling success since being introduced just prior to the recession. They seem more subject to the dynamics of market trading than land and building supply and demand.
Strategic land investors working with land development experts often do so in micro-markets. In areas where employment is growing, for example, there may be strong incentives for local planning authorities to grant land use changes from agriculture or industrial to residential (to accommodate economic development). A strategic land investment will necessarily require work on the part of the investors (or their joint investment advisors and agents) to achieve the zoning change, design and develop infrastructure, then sell the land to homebuilders. This process is perhaps too slow for speculators, taking 18 months to five years to complete and to achieve a return on the investment.
Even with the more strategic approach to land development, an investor is strongly advised to work with an independent financial advisor. This helps the investor weigh the relative risks and rewards of land development against his or her capital growth planning and make decisions based on objective criteria.
History tells us that over a long enough time span catastrophes are likely to occur. Fires, flooding, earthquakes – none can be prevented and all can be potentially devastating. While these events can’t always be avoided, we can prepare for them. Running practice fire drills enables us to act appropriately during misfortune while maintaining emergency food storage ensures we won’t starve when tragedy strikes.
Just as physical calamity can turn lives upside down, financial upheaval can lead to an unrecoverable loss. Fortunately, we have the ability to prepare for financial uncertainty in the same way we prepare for other exposures. As the current bull market is now both the fourth longest in history (64 months) and the fourth largest (+192% gain), now would be a perfect time to ensure you are prepared for the next market pullback.
Run a Portfolio Fire Drill
You can run a fire drill for your portfolio by understanding the loss potential of your holdings. It is critical to recognize that the amount of volatility your portfolio will experience in declining market environments is dependent on your asset allocation – how much of your account is invested in stocks vs. bonds. The larger the percentage of stocks in a portfolio, the more the portfolio’s value will increase during bull markets but decrease when the market declines. Let’s look at the historical performance and risk levels of a range of diversified stock-to-bond ratios:
Asset Allocation – Risk & Return (1970-2013)
Average Annual Return
Largest Loss in a Calendar Year (2008)
After determining the asset allocation of your portfolio, ask yourself how you would respond to another market correction like we experienced in 2008. For this exercise, considering loss in dollar terms is particularly productive. For instance, if 80% of your portfolio is invested in stocks, you might be able to convince yourself that you could sustain a 30% loss. However, supposing you have $500k invested, a 30% loss would mean your portfolio is suddenly depleted to $350k — $150k of hard earned money just evaporated. To many, the thought of losing $150k is more uncomfortable than the thought of a 30% loss.
Next, picture every media outlet sending warnings day after day about how the market is only going to get worse. Imagine yourself checking what the markets are doing multiple times a day and constantly being disappointed that it is another day of losses. Lastly, visualize your occasional friend, neighbor or family member bragging about how he got out of the market before the collapse and telling you how you are a fool for not doing so.
How would you respond in such an environment? Would you have a hard time sleeping or digesting your food? It’s critical to be honest with yourself. If you would stray from your long-term investment strategy by selling after a market drop and waiting for the market to recover, your current portfolio may be too aggressive. If so, scale back the assertiveness of your portfolio by reducing your stock exposure now because selling stocks during a market decline is the last thing you want to do.
Sound financial planning suggests individuals should scale back the assertiveness of their portfolio as they approach retirement. While a young worker with 30 years until retirement can afford to be aggressive and has time to recover if a large loss in suffered, a person who is closer to retirement can’t afford to endure a significant loss right before the invested funds are needed to cover life expenses.
Maintain an Emergency Financial Storage
As stocks and bonds are the long-term portion of your investment portfolio, cash equivalents are your tool for dealing with short-term spending needs. Before even investing, everyone should have an emergency reserve holding enough cash to cover three to six months of expenses. These funds should only be tapped in the event of a job loss or a medical emergency.
Additionally, investors who are taking withdrawals from their portfolio in order to meet cash flow needs should also have the equivalent of two years of necessary withdrawals in cash at all times. These funds should be used to cover living expenses during the next market correction. Having this emergency financial storage will prevent you from having to take withdrawals in a down market and allow your portfolio time to recover.
No one knows when the next bear market will come. However, just like winter follows every fall, market corrections will ultimately come after every bull market. Preparing for such a financial downturn will ensure you act appropriately when the time comes and prevent financial catastrophe.
Are you willing to invest in a more long-term and reliable organic traffic source for your website? Then let’s look at a search engine that can assist you in increasing your traffic.
Interview an Influencer or Get Interviewed by a High-traffic Website
Have you heard of Tim Ferriss, the author of the Four-Hour Work Week?
His podcast is nowadays a staple content type that he provides to his viewers. Tim’s show has world-class performers who share their insights on a variety of topics, and he is well-liked on social media. Do Tim’s fans enjoy the show? So far, the show has received over 50 million downloads. On most days, it’s the most popular business podcast on iTunes.
Interviews, whether on video or audio, are inherently conversational, lively, and engaging. The great aspect is that it’s a win-win situation for both sides. The interviewer is exposed to a new audience, while the interviewee is able to provide his website visitors with new fascinating and authoritative information. You can ask an industry influencer to share your interview with their followers on social media if you interview them. Consider the organic traffic you’ll get from their social media followers, which number in the hundreds of thousands. Consider the level of interest generated by a prior Derek Sivers interview on the Tim Ferriss Show. Derek shared the show’s URL with his 283K followers on Twitter. It won’t hurt if you establish a relationship with the influencer as a result of the interview.
Similarly, being interviewed by a high-ranking website can result in a significant increase in search engine traffic. Harsh Agrawal’s blog, Shoutmeloud, received 35,000+ views in a single day after he was profiled by YourStory. That was the blog’s most popular search engine traffic source (with 600,000+ monthly visitors). Because interviews provide consolidated value, they can be used as a long-term lead generating source for your company. Consider how many bloggers you’ve learned about through interviews on YouTube and other high-authority websites.
You may also conduct a Reddit AMA if you have a very compelling storey to tell. Mateen’s AMA got about generating $85,000 in profit by selling TeeSpring shirts/hoodies received 2000 page views. He also boosted the number of visitors to his website on a daily basis.
By registering as a source with HARO, you can also answer queries from journalists. On HARO, Christopher from Snappa came across this question from Inc Magazine about the future of content marketing. He swiftly responded with a thorough response. He was mentioned in Inc a few weeks later as a result of this. HARO is an excellent strategy to have your brand mentioned on authoritative news sites such as Entrepreneur and Inc. Those backlinks will enhance your search engine traffic and increase your marketing strategy by improving your reputation in Google’s eyes. Contact an SEO agency to find out how you can do this and how they can manage it for you while you work on the bottom line of your business.