Do you want to invest in Dutch real estate? There are many factors you need to keep an eye on. In this article we will discuss the most important aspects of investing in land. House prices have risen sharply in recent years. An important cause of these price rises is simply the shortage of housing. And this shortage is expected to increase in the coming years. Bouwfonds calculated that 1 million more homes will still be needed in the Netherlands until 2030. It is impossible to achieve this number within the currently inhabited areas. In the coming years, therefore, new building land outside the city will have to be looked at. So then, is buying land an interesting investment?
Actually, land is a very logical investment. It is a product that represents real value, it is scarce and cannot be printed like money. Due to the increasing demand for building land, it can be expected that this will lead to an increase in price. Therefore, land can be an interesting investment. There are some aspects to take into account.
Where does land for housing come from?
In the Netherlands, the municipality is the party that can issue building land. This happens because a plot is designated as building land in a zoning plan. Building land intended for housing has a different value than land used for agriculture. Building land costs €450 per square meter on average, versus €6 for agricultural land. So it is quite interesting to own agricultural land and to then be able to sell it as building land. And that is exactly what large parties such as municipalities, banks and insurers have done on a large scale in the past.
Invest in Dutch real estate. How does it work?
Everyone is allowed to invest in dutch real estate or buy or own land in the Netherlands. This is not reserved for the government. As explained in the previous paragraph, a municipality can change the intended use of land. Before the crisis, many municipalities earned (a lot of) money in the following way: buy agricultural land; change zoning plan; sell the same land as building land. And as long as there is demand for building land, there is no problem. During the crisis of 10 years ago, housing construction came to a standstill in the Netherlands. Municipalities had bought the agricultural land with borrowed money. A number of municipalities were left with major financial commitments and land for which there was no demand.
This is now a thing of the past. There is plenty of demand for building land. The future demand for housing is much greater than all the building plans currently being prepared by the municipalities.
But the principle is unchanged. As a private individual, you may buy (agricultural) building land and decide for yourself at what price you sell it. Clearly, the biggest profit is made when you buy agricultural land and sell it as building land.
Invest in Dutch real estate. What are the risks?
Although the principle is very simple, investing always involves a number of risks. And that also applies to investing in real estate and land. A few risks to think about:
Not all agricultural land becomes building land. With the purchase of agricultural land, you take the risk that a municipality does not end up changing the zoning plan. That means your land will remain agricultural land. Even if that is the case, returns can still be achieved. Agricultural land prices have also risen in recent years, from €47,530 per hectare in 2012 to €59,230 in 2018. In addition, returns can be achieved by letting farmland.
Time. As an owner of agricultural land, you have no influence on the pace at which a municipality develops housing development plans. So it can take a long time before the land you own is involved in project development. To invest in real estate and land is therefore a good fit for a buy and hold strategy..
Less liquid. A plot of land is not comparable to an ETF or shares. For the latter, there is always a buyer available at any time at the then-current market price. This is not always the case with land. When you invest in land you may need a patience before you see ROI (Return on investment).
Costs. Agricultural land is hardly ever sold per square metre, but per hectare and usually with a multitude of hectares at a time. This can cost up to €70,000 per hectare. There is a solution for smaller investors to invest in this market.
