Investors embrace land banking to beat inflation
Notwithstanding the low contribution of the real estate sector to Nigeria’s Gross Domestic Product (GDP) estimated at seven per cent and the expected growth, land banking has become a thriving investment option, especially for corporate real estate investors.
The concept involves buying land in small or large quantities for a reduced amount, with the aim to develop such land or selling the same for more profit in future. Findings reveal that land banking has been in existence for decades and a goldmine, yet unexplored, but recently gaining popularity in the country.
In an environment where investment opportunities are limited, people tend to look at land banking as the best investment option. Consequently, purchased land is banked until there is substantial increase in value as the result of rezoning, population growth or municipal expansion.
Specifically, in locations such as Surulere, Yaba, Ilupeju and Gbagada, Banana lsland, Abuja, Ogun, Port Harcourt and others, land prices hold the highest value. This is largely as a result of the industrial and commercial concentration in those locations.
Although there are challenges to it, especially the preponderance of land grabbers in the sector, but experts insisted that the investment guarantees between 50 per cent to over 100 per cent profit.
The Chief Executive Officer, Crystal Tee Square, a real estate development and management company, Mr. Oloyede Olatunde, said one of the attractions for people investing in land banking, otherwise referred to as land speculation in land economics, is because of the rate of appreciation in value compared to other forms of investments.
“You can grow your returns easily. The investment could be done according to your financial capacity. In the era of uncertainty, one retirement plan could be based around land bank,” he said.
According to him, land appreciates all year round because demand for housing will continue to grow in due to age long neglect on the part of government.
Oloyede disclosed that some of challenges faced by investors in such scheme in an environment like Nigeria, include difficulties in obtaining necessary approvals from government, ‘Omonile’ factors, delayed justice in settling land matters, unstable government policy, failure in the area of infrastructural development by government, which impair land appreciation.
He also said the bureaucratic nature of land documentation and record in land ministry could discourage many people from adopting the investment strategy.
To maximise the opportunity, he stated that there was need for consistency in government policy formulation and the urgency to embark on massive infrastructural development as well as government strengthening of financial support to real estate firms.
“Government should employ professionals and ensure adequate monitoring of land ministry to achieve efficient service delivery. The Ministry of justice also needs to dispense justice promptly so as not to hinder justice as it relates to land matter,” Oloyode said.
The Head of Department of Estate Management, University of Lagos, Professor Modupe Omirin, said instead of looking for land to build structures, people are looking for land for speculative reasons, expecting that the prices will go up so that they can resell at a huge profit.
She stated that land banking is a good investment strategy to the extent that the value keeps increasing. The cost of acquiring land, she observed always goes up and hardly ever comes down.
She said, “It’s quite legitimate, if your business is in real estate development that involves building houses for sale, instead of buying in piece meal, land banking makes a lot of sense, especially when you know the prospects of a location, where you are investing. You can buy and keep lands until you are ready to bank roll your project.”
Omirin said, “If many people are speculating, when there is land hunger, many others are denied access to land and to a large extent it won’t be a very good thing because it seems to have some anti-social connotation for as long as land is kept unused while there are people, who need it. It denies a person who needs land for immediate use access.
“The implication is that for that man to come and build the house eventually, he must pay added price otherwise the person who is holding the land won’t sale. When people buys land at very expensive price, they shift the cost into the price of selling built units of housing and people will pay excess rent.”
To a large extent, she stated that the strategy is very expensive in Nigeria’s environment because land isn’t cheap especially in cities like Lagos but could be affordable in the outskirt of cities. Only those who have a lot of capitals like corporate agencies can afford land banking, and it’s part of what constrains the supply of land for development generally in the cities, she said.
According to her, “We have a situation where demand for land is very high, people demand for land for legitimate reasons and further use but much demand for land for speculative reasons. For average medium average income earners to low-income earners, it isn’t a cheap thing at all.
“There could be constraints in getting the land, negotiating and buying with its requirements that sometimes scare people away. Title to land may be another issue because if you don’t have the right title, you might end up buying a court case.
On how to over come the nuances of land banking, Omirin said, “you have to be able to secure the land and ensure that you don’t suffer from encroachers who might come and sell behind your back. Those who create land banks legitimately could put the land into temporary use pending the time they are ready to develop. Embark on farming; give out leases to those who would make use of it, develop with temporary structures and pay rents. It could also be turned into other venture that doesn’t require much capital, which would ensure that people are there and using the land.
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