Many developers have been on the sidelines of late waiting for the credit crunch and property prices to stabilize. But not everyone is scared to enter this market. Many think now is the best time to buy property they have witnessed in 20 years.

A recent article in The New York Times addresses that very issue. (Sure, Land Is Cheaper. So Is It Time to Buy?)

I agree with the New York Times article that there are some great opportunities in the marketplace right now. What I fail to agree with is the approach the article seems to condone.

The article is focused on land banking instead of property development. Land banking is where you purchase a property with no intention of developing it. You simply are holding it with the hope that it will appreciate in value.

Personally, I think land banking can be much riskier than actually developing the property. With property development, you first recognize a demand for a certain product in the marketplace (office space, apartments, medical, etc.) and then you develop a piece of property to meet that demand.

With land banking, there is often no real plan of what the end strategy is going to be. That’s very risky. If you don’t have a good idea why your property is going to appreciate in value, and how and when you are going to sell and recover your return on your investment, then you are just gambling.

I have been around the development industry long enough to see how quickly permitting requirements and building codes can change. Many of these changes can have huge impacts on the value of your property.

The longer you hold an undeveloped piece of property, the greater the risk that a change in permitting, codes, or zoning will negatively impact your property.

Wouldn’t you rather get the property developed as quickly as possible and avoid such risks?

Now is the time to be looking to buy land - but only if you can develop it into a marketable product today.

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