The gains in the real estate market and the search for new, non-apartment investment channels, have led to the growth of a new-old real estate investment channel – buying agricultural land that may, in the future, be released for building – and to double and even triple its price. Before running to buy agricultural land for investment, there are a few important things you should know in order to ensure that the land you are buying has true potential to be released:
The relative stagnation in the housing market, as well as the drastic steps the government has taken in an attempt to curb investors in this market, has led to the growth of a new-old real estate investment channel – investing in agricultural land.
The transaction involves selling land that is zoned as agricultural – meaning that according to the plans applying to it, the land cannot be built on at this stage. Consequently, the land’s value is significantly lower than land that is zoned for construction. However, there is an expectation at the sale stage, which manifests in the land’s value, that the zoning will change in the future (be released), and it will be possible to build on it, which will increase its value tenfold. Usually, the higher the certainty the land will be released, the higher its price will be.
However, not all that glitters is gold. Before considering this type of investment, it is important to pay attention to several variables that may influence the profitability of the deal.
What should you check before buying agricultural land for investment purposes?
First, as explained, the change in the land’s value stems from the change in its zoning – in other words, in its legal status. Therefore, it is extremely important that before purchasing agricultural land, check with an attorney that specializes in the field, what the land’s current zoning is, and what are the chances of it being released. The check is conducted based on several parameters, such as its location, its specific zoning, its municipal affiliation, its development environment, and so on. The attorney that checks the deal must be well versed in “regular” aspects of a land deal and also in zoning and construction aspects. This is in addition to the other “regular” checks that need to be thoroughly conducted for every land deal.
Another factor that needs to be considered is the nature of the land sale transaction, and how many people are involved. Since a unit of agricultural land usually encompasses a large area, it is sold to several buyers so that each buyer owns a relative part of the land and not a specific part of it. Therefore, a mechanism is required that will arrange the relationship between the buyers and their rights now, and when the land is released for construction. You also have to check what rights are being sold with the land, because sometimes the seller keeps future construction rights on the land, which impacts the cost of the land.
Once all the checks are performed by a skilled and professional attorney in the industry, the profitability of the specific deal can be assessed, and the chances of the land being released. If the check yields positive findings, then the profitability of the deal is high, and there may be a real chance of return on the investment.
MGR’s Commercial Real Estate Department has special expertise in this field, in representing both buyers and sellers of agricultural land, and it has been involved in some of the largest relevant projects in Israel.
By: Dov Macner, Adv. – Partner and Head of the Commercial Real Estate Department