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The Development Land Challenge - Investors' Vicious Circle

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Published on Saturday, November 14, 2015 by Land Century

Investors enter into a vicious cycle that we like to call the “development land challenge.” Several issues will be faced by investors when they are attempting to buy land and build on the property. This is less of a concern with smaller lots and less ambitious projects. For example, if you bought an acre lot and planned on building a house, it’s not as difficult as an investor buying land to build a shopping center.

Land Being Consolidated

Finding larger lots of land is becoming increasingly difficult for investors. Many investors purchased large acreage and divided up these lots to sell them individually for a higher price. The issue with this is that it made it harder for investors to find land because it’s being consolidated in smaller lots. Sure, you can find large lots in the middle of the country, but these won’t have the foot traffic needed to turn a profit for a shopping mall or an apartment, for example.

Land being consolidated is becoming a major concern for investors and makes finding the right lot a little bit harder. And, any big lots that are in city centers are going to be very expensive – often multiple times more expensive in comparison to lots and other areas.

Land Resellers Keeping Prices High

A lot of investors are in the market of buying and holding land, which keeps prices high. Smart investors will buy land in a prime location and hold onto it in the event that a developer comes to the area and wants to buy the property. But, when they have a foothold and there are no other properties available, they will raise prices dramatically for the buyer.

Prime location land always has a high price, but when resellers own the majority of the land, they push the prices even higher. This puts developers and investors into the vicious cycle of having to pay a much higher premium than normal for the land that they purchase.

Finding Useful Lots in a Good Location

Useful lots are hard to come by. This is due to a plethora of reasons. What makes a good location? This depends on what the investor has planned for the property. If the property will be an office building or shopping center, you will need to be in a prime location where there are already people present.

City centers are common areas that are considered a good location because this is where the majority of locals will go for grocery shopping, paying their bills, shopping in general, and to purchase gas. These lots are very useful because they are in a good location. Even a bad lot can be made useful if it is in the right location. But useful lots are hard to find. The lot may be too small, or there may be too much work that has to be done to prepare the land for building.

The truth of the matter is that the land could always be made useful if enough money is present and the projected returns are optimal. Many large shopping complexes and buildings have been made even on swampland because the land was in a location that was desirable. But, the expenses to build on this land are immense and will need to be weighed appropriately.

Bureaucratic Concerns

One of the biggest concerns is the bureaucratic red tape that a developer will have to go through to build up on the land. A good example of this is zoning. You may buy a lot that is not zoned properly for your needs. When this occurs, you’ll have to talk to the local government in an attempt to change the zoning of the property.
And in some cases, this may be impossible to do.

There are also concerns about construction. If you’re building a large complex near bustling city, you may have to adhere to certain curfews due to noise complaints or noise pollution requirements. This is a major hurdle that will need to be discussed with local authorities and may hinder your project's forecasted completion date. In some cities, you may not be allowed to erect a structure that is too high. A good example of this is in London where buildings can only be a certain height so that major monuments can still be seen.

If you’re on the border of a commercial center in a residential area, you may also need to be concerned about locals that live in the area complaining about a building. For example, if the building is right outside of a neighborhood, complaints may arise due to the building being too tall, or there being too much noise from a concert hall, for example.

All of this would require a lot of bureaucratic approval that will hinder your project’s deadline. You’ll also have to worry about permits. When you try to have electric ran to the building or you need to dig into the surrounding grounds to lay utility lines, this will be another process that has to be approved and can take up valuable time during the development process.

But, a thorough planning process will allow you to overcome many of these hurdles from the very start. It’s more about dealing with long wait times as approvals have to be met. This can cause projects to take months longer, or even years in some cases with larger development projects.

The development land cycle is a vicious one and one that investors must be warned of prior to starting to look for land to purchase. You want to discuss your project with local authorities prior to buying the property to ensure that everything goes along as smoothly as possible.

Will you be able to avoid all of these bureaucratic challenges?

Absolutely not. As new laws are passed and new authority figures are brought in to local governments, you’ll find that it may be harder to build and develop land – especially in areas where there are smaller populations that may be against urbanization.

This is where personnel is often hired to allow you to have dedicated person to get through these cycles while you focus on other important areas of the development process.
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