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Managers Approach Land Investments

equity index (performance adjusted for inflation) generated an annualised return of only 0.1 per cent. Bonds did better, with an annualised return of 6.1 per cent, benefiting from a low-interest rate environment that could change soon. Real assets including land can and often do perform much higher.

• Land assets are hedges against inflation – Real assets, including land, tend to rise in value with inflation. Fund managers value such things as farmland and forestry holdings because their products rise with inflation and increased yields (food and wood) over time as well. Considering strategic land investments, which prepares and converts raw land adding into housing-ready developments, the demand for housing and price increases that outpace inflation drive home this point.

• Land assets are non-correlative to financial markets – Land itself lost little value in the financial crisis while the financial markets were in a tailspin.

But to be clear, working in land investments comes with requirements:

• Illiquid, for better or worse – Almost all real assets cannot be disposed of easily. Investment in a joint venture land opportunity, for example, will come with contractual time parameters. It may be that the investor can exit after 18 months or after several years. Real estate investment trusts (REITs) are the exception, traded as market securities (and as such are subject to price volatility).

• Requires specialised skills – the predispositions of local planning authorities, home site design and infrastructure. It’s far from a market security buy-sell scenario – and just as importantly, it rewards strategic and creative thinking.