“In Life, two things are certain: Death and Taxes”

Business Insights
10/05/2017

It might have become a cliché, but the truth of this statement remains undeniable.

Kieran Roberts of Harley Investments comments on an often overlooked investment opportunity.

There are other things we know to be true – Britain’s population is growing and we are ageing. This puts pressure on house prices, on the National Health Service, on the public purse and provision of services. These are issues that hit the front pages day in, day out, but they are not the only issues worth considering. Growing numbers of people in this country also raises serious questions about what to do with our loved ones when they are gone.

“IT’S NOT JUST A LONDON OR A BIG TOWN PROBLEM. EVEN SMALL PARISH COUNCILS ARE WONDERING HOW THEY ARE GOING TO COPE WHEN LAND RUNS OUT.”

Dr.Julie Rugg University of York cemetery research unit

WHAT’S THE PROBLEM?

In a bid to tackle the shortage of burial grounds, London passed a 2007 law allowing authorities to dig up graves that are older than 75 years old to make way for new ones, but many of the capital’s boroughs have been reluctant to use these powers, according to the University of York’s cemetery research group.

Instead, local authorities have begun to invest in cemeteries miles away to accommodate demand for burial plots – and they’re turning to companies in the private sector to help. Both Tower Hamlets and Hackney councils have stopped offering burials in their own constituencies in the past few years, and have resorted to sending their dead to neighboring boroughs. This has resulted in valuable investment opportunities for private cemetery operators across England.

Tower Hamlets council, for example, did a deal with the owners of Kemnal Park cemetery in Bromley in early 2015 for 3,000 burial plots at a total cost of £3 million.

According to the Government backed Money Advice Service, the cost of funerals is rising. Recent figures suggest that a funeral using a funeral director costs on average £3,675. MAS advise that this cost can vary quite a bit, depending on location and the funeral arrangements. In London for example, the price of funeral is almost double the national average.

It might not sound especially tasteful to profit from the dead but being practical, investing in the provision of burial sites can make sense. It’s essentially a real estate investment with guaranteed demand for the asset.

Because of the limited supply, prices are rising – especially so in densely populated areas such as London. Research compiled by UK Funerals Online suggests the UK funeral market is currently estimated to be worth around £1 billion annually, with more than 600,000 funerals taking place each year. A growing population creates a greater demand for burial space and many graveyards around the UK are expected to reach full capacity within the next five years.

Private cemeteries are increasingly big business. Savills reports they are seeing increased interest from entrepreneurial developers looking to acquire key sites – either freehold or leasehold – that are easily accessed and within close proximity to an existing population, which in turn generates demand and value.

IS THERE A SOLUTION?

PRIVATE INVESTORS CAN GET INVOLVED

HOW DOES IT WORK?

Investing in burial plots isn’t regulated by the City watchdog, the Financial Conduct Authority, which means your money isn’t protected by the Financial Services Compensation Scheme. It’s also not guaranteed to make you money and it’s likely that the value of investing in this asset will only be realised when you sell a plot rather than in an ongoing income. But for capital investors looking for a bit of exposure to property with a guaranteed rental demand it’s a good alternative.

It’s possible for private investors to get a slice of this market by investing in private cemetery operators, some of which claim to offer returns in the region of 40 per cent in just two years. Returns can be so high they seem too good to be true but they reflect the fundamental imbalance of supply of land and demand for ground.

Some inner-city councils, such as Greenwich, charge up to £2,000 for residents and £8,000 for non-residents for the exclusive use of a plot with a memorial plaque – these costs reflect growing demand and the shortage of space. While it’s not possible to invest in council-run cemeteries, there are rising numbers of privately owned sites near large cities.

At a time when banks are slashing savings rates and it’s hard to find a decent return on your cash, double-digit returns look attractive. Investors purchase a lease from the cemetery operator, which has a capital value and is usually between 75 and 99 years - much like a leasehold secured on a property. They also receive ground rent, usually on an annual basis, which is subject to review and can rise over time. Family members who purchase the burial plot also pay a maintenance fee, which will cover things such as grass cutting and insurance for the burial plot, and this also contributes partly to returns for investors.

www.harleyinvestments.com