WHEN IS LAND BANKING NOT BENEFICIAL?
I wrote an article some days ago about land banking, since then I have been receiving emails as regards consultation and advice, which I responded to accordingly. There was, however, an email that caught my attention.
Content of the email:
“Good day ibejulekkilawyer my name is Akinolu Hassan, I am an undergraduate of unilag studying urban and regional planning. Your article on land banking part one and two was very enlighten. Thank you sir for sharing your knowledge. However, the articles only stated the benefits of land banking, I would like to know circumstances where land banking might not be profitable apart from fraud or defect in land title. You can leave my name on your blog. Thanks.”
Before I respond to this above, I must say that I am impressed with Akinolu’s line of thought. Thanks for this brilliant question.
First, I will like to acknowledge the fact that for every good investment, there are disadvantages to it. However, to determine a good investment, its advantages should be 80% greater than its disadvantages when scaled.
This is the case of land banking. Lands generally appreciates, therefore, Land banking has a greater prospect than its risk. This doesn’t mean that there are no situations where land banking might not be profitable, however, this is dependent on what the investor wants to achieve through land banking scheme.
The major reason why land banking might not be profitable is the failure to foresee the value of the land location in years to come. For an investor in the land banking scheme that has the intent to make profit in the scope of six months to one year, such investor must be able to determine the value of the land location to have a successful investment.
Inability to determine the value of land for these categories of investors might pose a great risk to their investment, thereby making land banking unprofitable. For this kind of investors, they must invest in a place with great developmental prospect that has some factors powering its appreciation in a short while. Land purchasing in these kinds of places will undoubtedly allow the land to appreciate very fast within the period of which the location of the land is experiencing development and thereby in the long run giving a good investment return. The illustration below will give better understanding.
17 years before now (2017) was year 2000. Imagine Mr Ajala bought vast expanse of land at Ibeju-Lekki in year 2000 for land banking investment scheme, hoping to sell in the scope of two years for more profit, such investment is a great risk and might not be profitable simply because at that time, Ibeju-Lekki had no prospect and development was far away from it. Getting a buyer might be almost impossible. Even if there is a buyer, the value of the land at that time will not yield the expected profit. To Mr Ajala, land banking would seem like a bad investment.
As an investor in land banking especially for a short-term investment scheme, one must be able to determine that value of the location to invest in, that will yield profit in the shortest space of time. Hence, one is expected to choose a location that has great prospect. For example, Ibeju-Lekki axis now might be the best location for a short-term investment, this is because a lot of factors have contributed to its appreciation.
It should be noted however, that for another investor, failure to foresee the value of the land location might not be a risk to his investment. These categories of investors are those that have the intention of leaving the land for a very long period. Imagine in year 2000 Mrs Tolase bought very large expanse of land maybe for Fifteen Thousand Naira per plot and has held on to it till this year (2017), the worth of such vast land will be several times the amount it was bought, say Fifty Million Naira.
Before you go into land investment, it is important that you identify the purpose of such investment, considering whether it is a long or short term, as this will help the investor identify the right market for such purpose, thus making land banking profitable.
For further assistance or consultation on this article or other issues, feel free to email @ ibejulekkilawyer@gmail.com or Call 08034869295.
