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A common assertion made by investors when evaluating land under a leasehold is the presumably lower profitability and reduced investment options, judged according to the precept that ‘profitable investment of liquid funds’ is the best policy. From a macroeconomic perspective, however, this approach is too limited.

Depending on mortgage and leasehold rates, a special approach may be expedient. Since the land is not bought but leased, less money can be invested directly, but the cost of the leasehold itself can be passed on to the future tenants indirectly as a transitory item. The profitability of the buildings should thus be considered separately and may well meet the required profitability criteria.

Location risk reduced

The lower investment volume reduces location risks because real estate portfolios can be more diversified if there is no longer a need to invest in land. Diversification is achieved not only through the locations themselves, but also from the specific mixture of types of utilisation (residential, commercial, industrial, etc.). More locations allow for more types of utilisation, which reduce investment risks over a long period of time. Professional investors always pay special attention to the overall risk of a portfolio.

A wider range of investment opportunities

If you limit yourself to developing only purchasable plots of land, you will miss out on many exciting opportunities. Significantly more land is available if you are open to the possibilities offered by a leasehold because, for various reasons, many private and public landowners clearly prefer this type of transaction. This is particularly true of highly coveted locations with high land prices, where owners are increasingly reluctant to make direct sales. Furthermore, this opens up the possibility of investing in top locations even with a limited amount of funding. Similar observations can be made of buyers of flats, single-family homes and commercial units.

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