With high inflation and rising interest rates in 2022, many investors are looking for stable assets to hedge against uncertainty in 2023. Land investment has always been regarded as a relatively safe long-term investment. But is land still a good investment in america in 2023? There are several key factors to consider when evaluating the outlook of land investment in America. Overall, land investment remains attractive but also faces some risks that investors need to be aware of.
The attractiveness of land investment remains high amid economic uncertainty
Despite headwinds in the economy, the fundamental attractiveness of land investment remains strong looking ahead to 2023. Land is a finite resource, especially in desirable locations, meaning values tend to increase over long periods of time. With high inflation eroding the value of cash savings, land offers a hedge. The potential for development or resource extraction also creates income potential. While cap rates have compressed amid rising rates, they remain comparatively high for land assets versus alternatives like bonds.
Rising rates present challenges but farmland values have room to run
Farmland has been one of the strongest performing segments of land investment in recent years. But the sharp rise in interest rates through 2022 has cooled sentiment. Still, fundamentals remain supportive as commodity prices and export demand remain healthy. Profitability in the agriculture sector also remains well above historical averages. Compared to past cycles, farmland values are not overheated relative to farm income, suggesting room for further appreciation.
Development land faces uncertainty but demographic trends bode well long term
Land purchased for development, such as residential or commercial real estate projects, has benefited from strong demand in recent years. But prospects for 2023 are more uncertain as housing activity slows. Much depends on the severity of the anticipated recession. Still, demographic trends driven by millennials and baby boomers reaching life stages spurring demand for housing should drive development over the long term.
Regulatory risks and property taxes merit close scrutiny
While land investment has major attractions, investors need to be aware of potential regulatory risks. Changes to zoning or usage allowances can impact values. Investors should closely evaluate carrying costs like property taxes, which have soared in some areas. Performing due diligence is key to avoid potential pitfalls.
Land investment retains appeal as a long-term store of value amid economic uncertainty. But risks like rising rates and slowing housing demand create a more nuanced outlook for 2023. Investors need to carefully evaluate property specifics, understand regulatory risks, and emphasize quality holdings.