When you hear the word ‘Banking’, what comes to your mind? – Money? – Right.
But do you know you can ‘bank on land’ just like you bank on money?
Let’s make it simpler. I will explain.
You bank on money by putting it in a fixed deposit and get an interest rate when it matures. Same way, you can ‘bank’ on ‘land’ and sell at a higher price in the future for high returns.
Although not many people are familiar with the term ‘Land Banking’, it is still a common real estate investment in Nigeria. One in ten persons buy undeveloped land with the intention to resell at a higher price in the future. This act is called ‘Land Banking’, it basically involves three (3) stages;
- Buy undeveloped land at an area with potential development for a low price.
- Hold onto it until its price increases due to infrastructural or environmental development.
- Sell the land at a higher price when there is high demand for it in the area of investment.
What Is Land Banking?
Simply put, land banking is saving on land instead of money.
Land has a consistently appreciating nature, it rarely ever depreciates and there is always continuous demand for it. When you buy land, it appreciates overtime and you get a high return upon reselling. So, it is a reliable source of investment with relatively low risk.
Therefore, land banking is an act of buying undeveloped land to keep for future sale at a higher price. It is a form of real estate investment that capitalizes on future infrastructural development.
Although land banking investment promises high return, it is still subjected to environmental and infrastructural development in the investment area. Consider buying land in an area with potential industrial or infrastructural development. A land with access to good road-network and easy access to social amenities will be a great choice.
Benefits Of Land Banking
Aside from the projected monetary returns, there are benefits you can enjoy as a land banking investor. This benefits include;
1. Lease:
This is a great source of passive income for you as a land banking investor. You can lease out the land for use on a monthly or yearly rent basis.
2. Agricultural Usage:
You can cultivate agricultural produce on the land for domestic or commercial purpose before you eventually resell.
3. High Returns Guaranteed:
Land banking is an investment that guarantees high returns despite the risks. Land demand continually increases due to various factors such as population increase or industrial growth.
4. Low Fund Requirement:
Unlike some investments that require huge capital to fund, undeveloped land requires a low fund to purchase and maintain.
Risks Associated With Land Banking
Although land banking is a relatively low risk investment, these risks can still affect the resale value of the land. It is important to understand these risks and take necessary measures to counter them.
1. Government Policies/Acquisition:
Section 21 and 22 of the Nigeria’s Land Use Act restrict citizens to occupy, buy or sell without their governor’s consent. This policy might not only affect the resale value but also the continuous ownership of the land. You must ensure that all necessary governmental policies are adhered to during the land acquisition process.
2. Land Fraud:
‘Omo onile’ is a popular term used to address land grabbers in Nigeria. There is always a dispute of ownership when investors find out the land is owned by more than one person. Verify the land availability for acquisition as well as the credibility of the previous owner.
3. Environmental Factors:
Investors should examine the intended land for soil contamination due to chemical or agricultural damage. This examination should be conducted by experts to determine any damage on the land from previous use.
4. Long-term Project:
You should understand that infrastructural development might take longer to occur in your area of investment. Short term resell of the land can also affect the price.
Land Banking Investment Process
For a successful land banking investment, there are factors to consider and procedures to follow.They help you make informed decisions and ensure a secured investment.
1.Location:
Get the right information about your intended area of investment, the environmental issues e.g flood, associated with it. Fact check if there is any development project for the area by the government or private developers. Also, know the standard market value of land in the area as well as potential increase in its value.
2. Expert Research:
You can also employ the service of reliable land banking firms to conduct proper research of your investment feasibility. Obtain updated reports on governmental policies, zone issues and projected development for your investment area.
3. Documentation:
In land banking investment, there are legal documents to be acquired to validate transfer of land ownership. Some of these documents include but are not limited to;
- Survey Plan: This document basically summarizes the validity, landmark and total size of the land.
- Purchase of Receipts: It is an important document that validate the transfer of ownership from the seller to the buyer. It contain the seller’s
Name, buyer’s name, payment received, date of transaction, signature, etc. - Certificate Of Occupancy: This document is issued by the government to confer land ownership to individuals. It is commonly known as C of O.
- Deed Of Assignment: This document contains all necessary information needed for the permanent transfer of land ownership. It shows detailed information about both parties, all agreement made and it requires the governor’s consent for validity.
Conclusion
Land banking investment requires patience, it is not a get ‘rich quick’ scheme. Financial investment might fail due to inflation but land banking guarantees a return if you follow the right process. Understand the reason you want to invest in land banking, get land in an area with potential development and value appreciation. Do your due diligence by obtaining the right information through reliable land banking agencies. Follow the right procedure during the land acquisition process and obtain all necessary documents.
Land banking investment has provided many individuals with financial growth and independence, you might just become one of them.