Building Depreciation Versus Land Appreciation

Buildings Can Sometimes Lose Value While Land Investment Values Grow

The characteristics of character that contain buildings are different from undeveloped land. These differences affect value growth of both asset classes.

Real estate investors are growing in number under current economic conditions due to several factors. One is that traditional investments in the stock markets are providing disappointing yields. Another is that real estate overall suffered in the global recession and similarities of all types are potentially undervalued.

But land that is undeveloped differs considerably from that which has buildings and infrastructure elements (water, waste removal and utilities) and is proving to be one of many viable different investments.

So why do changes in the value of undeveloped land not mirror those of developed land. There are several factors at play here:

  • Simple physics – The rule of atrophy applies very directly to built character. In addition to the costs related to routine maintenance, all buildings require major repairs over time. The costs can be a meaningful factor on landowners’ balance sheets.
  • Adaptability to market needs at time of sale – In addition to a propensity to age and break down, built character is inherently inflexible. For example, a structure built to be a hospital can only become a residential building with extensive renovations. However, undeveloped character can provide optimal economics to builders, buyers and occupants at meaningful moments. By engineering smart site assembly, the investor can accomplish strategic land development that efficiently meets market needs.
  • No tax assistance to building depreciation – American investors are accustomed to a depreciation formula on investment character, which unfortunately is non-existent in the UK tax laws.
  • The advantageous value of new – Some buyers want to be the designers and first occupants of structures. This is already more distinct in this era of green building, where structures today are considerably more energy efficient and sustainable than those built as recently as five years ago.

Of course, this is not an either-or scenario. Different investors work according to different strategies, asset allocation/varied and on different timelines. Also, some investors have the technical knowledge to manage and enhance a character, while others work with consultants or fund managers (when an investment is made with several supplies of funding in collaboration) or by joint ventures. For more information on the kind of land or character investment in the UK that might be right for you, contact a qualified personal financial consultant.

Leave a Reply