Land Banking: Why You Should Be Investing In It

  • 2 months ago
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“If only I knew then, what I do now”: A common expression, that is often all to true when it comes to investing in real estate: especially land banking.

I am sure most people would love to have bought as much real estate as possible, 5-10 years ago, had they known that investments made would be worth double or even triple today.

Well there’s no better time to buy land and wait than now, as long as it is well located, the likelihood of banking (profiting) is very high. Thus making it one of the safest ways to store money and increase wealth (better than putting money in the bank!)

Land banking is a real estate investment strategy that has increasingly become popular, particularly in the emerging markets of Africa such as Nigeria.

This article aims to enlighten you on the how, why and where of land banking in Nigeria.

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What is land banking

Land banking is the process of acquiring future real estate development sites at today’s prices. Today’s prices are foreseen to be lower than what they will be in the future. Accordingly investors hope to profit by selling their already secured land for greater profits down the line.

There are many large real estate development companies that engage in land banking. These companies buy vacant land, farms and other greenfield sites to add to their exiting portfolios. These portfolios can be considered as their “bank”. This practice enables developers to have a ready stock of land for any future property developments.

Depending on their goals, developers may proceed to develop their lands somewhat, for example building up the infrastructure, so roads, electricity and water. They may also seek governmental approval to divide the land into smaller chunks and sell them on to individuals as estate plots.

Ultimately the land works like money in the bank and liquidity is created by dividing it into smaller units and selling them on to generate income.

This strategy has enabled many developers to strike it rich, especially in locations such as Abuja, where real estate prices have risen considerably over the years. This again reiterates the point made in the introduction that location is the most important aspect to consider before making an investment.

It is important to note that land banking is an investment strategy open not just to large property development companies, but can also be done by smaller private investors. The only difference being, that smaller investors would be acquiring smaller parcels of land: due to obvious capital constraints.

Agricultural land banking

The previous definition of land banking was primarily focused on the concept of the expansion or development of cities and other urban areas at the expense of rural places.

Agricultural land banking is another form practiced in Nigeria. This is the securing of raw virgin land that has been deemed appropriate for farming. This suitability is based on the lands topography, soil structure and climate. Often buyers do not intend to farm themselves or lease out to a farmer, rather the land sits in the “bank”.

Agricultural land banks are often purchased at reduced prices as these lands are usually sited far away from cities and the infrastructure that can be found in them. By investing in these agricultural lands investors hope that due to the lands ability to produce food, required infrastructure such as roads will develop over time. This allows the land to be farmed more productively hence increasing its value.

Investors may also profit from the expansion of urban areas towards these farmlands, potentially being able to change the zoning from agricultural to either commercial or residential.

Why land banking makes for a good investment

  1. Over the long run, land values are always going up: this is true globally
  2. You can decide to make improvements on the land: which will make it more valuable
  3. Land is relatively abundant and thus cheap: especially in developing countries like Nigeria
  4. Land is easier to manage than built up properties: no utility fees, no tenant problems etc.
  5. Land is a safe investment that will always be in demand for one reason or another

Where to land bank in Nigeria

The most important thing you need to consider before buying is the “where”: location, location, location is of the utmost importance.

There is no point buying land where you will find it very difficult to sell in the future, regardless of how cheap it is (unless you are a seasoned investor with a specific strategy in place). Consequently it is always recommended to buy near developing cities in order to maximize the return on investment in the shortest possible time.

Abuja is one of the fastest developing cities not just in Nigeria but worldwide, making locations close to the city great places to invest. Additionally Abuja has both agricultural and more urban land available: both can be purchased and land banked with.

Abuja’s outskirts like Karshi, Mpape, Gwagwalada and Bwari, among others, offer great land banking opportunities. Just buy at today’s low prices and wait until development reaches these areas before selling.

Final thoughts

With regards to real estate investing, investors often utilize only one of two strategies:

  • Buying a property and flipping it quickly
  • Buying a property to bring in passive income: rental yield

Land banking is a great alternative investment strategy: specifically for investors that just want to invest, wait and forget.

Land almost always appreciates in value and is relatively cheap to acquire in Nigeria. Abuja is arguably the best place to land bank in the country. Simply buy some plots near a soon to be developed district, wait and bank (profit).

Abuja Real Estate Insider

Land Banking: Why You Should Be Investing In It

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