What is Land Banking: 5 Benefits You Should Know

August 22, 2022by REDOC0

Land Banking is the practice of aggregating Plots, Acres, and hectares of land and keeping it for a certain period with the intention of future sale, development, or gifting after appreciation in Value.

There are thousands of investment opportunities to choose from in today’s world. Depending on your level of financial literacy, risk averseness, and budget. These investment vehicles range from low-risk to high-risk investment vehicles. Land banking is among the relatively low-risk investment opportunities with a potential for high returns.

Land banking is one of the oldest real estate investment practices where investors buy small or large quantities of undeveloped land, intending to profit from the resale of the land. Simply put, investors seek out land in underdeveloped neighborhoods and bank it until there’s substantial infrastructural development or population growth in the area before selling it for a higher price or developing it to meet the growing house demand.

Read also: Land Banking: Why You Should Invest Now 

BENEFITS OF INVESTING IN LAND BANKING

Appreciation of the land’s value

Land banking is a good investment strategy to the extent that the value keeps increasing: this is true globally. The cost of acquiring land, as observed, always goes up and hardly ever comes down.

The land is one of the assets that have the potential to appreciate over a more extended period. Investing in land, that has high development potential at the current or lower market value ensures maximum returns to the investor.

Minimal Start-up capital

Vacant land is generally the cheapest type of real estate you will find. It’s not until expansion and development occur that property begins to increase in value.

Hence, if you know where to look for great deals on land, it requires minimal startup capital to get your business up and running. It’s a type of investment that doesn’t necessarily need to have millions of naira.

The land is cheaper to own as a Long term investment.

The land is relatively abundant and thus cheap in some developing parts of the country like Ibeju Lekki, Epe (Lagos state), Mpape (Abuja). As an intelligent investor buying this vacant land offers you a more accessible and more affordable way into the real estate market.

When buying a piece of land for the right price, Land banking can be the type of investment you use to keep your money stored somewhere for a while. Your asset sits quietly in the background, costing you almost nothing and silently increasing in value.

Lower competition

In the real estate investment niche, there’s low competition. Most people (especially those with a lot of investment capital) are focused on the shiny and glamorous aspects of real estate investment – condo buildings, developments, house flipping, and multi-units.

If you looking to buy undeveloped land, then a significant advantage is the smaller competition you will face.

It is a finite asset

One of the biggest reasons you should invest in land Is that it is a finite resource. New residential high rises will continue to be built, but only a limited amount of land is available for ownership.

Read also: 4 Ways Through Which You Can Extra Income From Real Estate Business In Nigeria 

How Land banking protects you from inflation

A dollar or naira today will not buy the same value of goods in ten years. This is due to inflation. Inflation measures the average price level of a basket of goods and services in an economy; it refers to the increases in prices over a specified period of time. As a result of inflation, a specific amount of currency will be able to buy less than before. Inflation always crushes equity. So to protect your investment, you need to invest in a tangible assets like land, gold, and other types of assets.

One of the significant benefits of land banking is its contribution to positive credit scores and the leverage it offers an investor. You can gain access to loan schemes to invest in other investment vehicles or start a venture by using your land as collateral. At the same time, you can lease out the land pending the time it will appreciate enough to sell off. This is why land banking is the recommendable starting point for young and new investors

When did land banking begin?

Land banking originated in the 1920s and 1930s as means of making low-priced land available and ensuring orderly development. It started from the period of deindustrialization in the united states coupled with increased suburbanization in the middle of the 20th century leaving many American cities with large many amounts of vacant and blighted industrial, and commercial property. Beginning in the early 1970s municipalities began to seek solutions to manage decline or spur revitalization in once prosperous city neighborhoods.  St. Louis in 1971 created the first land bank.

While additional municipalities continued to adopt them at a trickle. It wasn’t until the mid-200s that land banks became viewed as a tested, reliable, and accepted model and experienced widespread municipalities dealing with the effects of the real estate market collapse of the 2007 financial crisis and the ensuing foreclosure crisis.

The Pros and Cons of Land Banking

Most investors pay less attention to this opportunity because they lack patience.

People want their money now; they don’t want to wait for decades to realize their gains.

It’s totally understandable because the land banking strategy does take a long time to implement.

Also, one of the cons of land banking is that in a land banking scheme. The worth of your unit depends on future zoning changes and the consequent demand. Sadly, there is no guarantee that the land will get council approval for development future or not. If the land you are buying is rural farming land. it is unlikely that it would be rezoned to residential land. Thus, when investing in a land banking scheme, there are chances that you end up with a dud piece of land that you are unable to build upon or resell for profit.

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Old Lagos Picture

 

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New Lagos Picture

Land banking in Lagos

Land banking is a growing investment strategy. Currently adopted by a lot of investors in Lagos and across the whole of Nigeria.

Epe is one of the fastest growing neighborhoods in Lagos state in terms of land price. This region has grown in popularity amongst land agents in Lagos State. Who commonly refer to it as an upcoming hub of Lagos state.

The area is situated next to the ibeju Lekki axis and is up to 67km away from Lekki phase 1. These two areas are connected by a major road known as the Lekki-Epe expressway. Epe also shares a border with the Ijebu-Ode area in Ogun State

If you are an investor, Epe is a location you should be looking to Invest in.

To get expert help to start your profitable land banking investment in Nigeria, send an email to www.redocint.com. You will be connected with an experienced property advisor, who will take you through a seamless investment journey.

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