What is Property Investment?
Land, and the buildings placed on it, has many uses and therefore many aspects to their value.
The original use and value of land was agricultural. This remains fundamental within Nigeria, as elsewhere, but with the advent and growth of industrialisation, land also becomes valuable for factories, warehouses, offices, infrastructure projects, retailing and urban residential development. Finally, land can gain value for tourism and leisure, which is in its infancy in Nigeria, but will emerge with time.
The ability to invest in property is made easier by mortgage loans. A financial institution such as a bank will lend money to you as individuals or businesses to buy a property.
Most lenders require the borrower to put down a proportion of the cost of the property as a deposit. As with other types of loan, mortgages have an interest rate that can either be fixed or variable. The loan is paid back over an agreed period of time, usually between 10 and 30 years.
Mortgages are very well established in many countries and are beginning to evolve in Nigeria now that the economic base of the country is becoming more stable.
What different types of Property Investment are available?
You can either invest in residential or commercial property directly, using your own judgement and finances plus mortgages, or you can invest indirectly.
Indirect investment in property can be done via a pooled or collective investment scheme such as a mutual fund, real estate investment trust or property (asset) backed investment securities.
Pooling funds with other investors in either managed funds with a property focus or listed real estate trusts, has the advantage of exposing you to a broader range of property such as commercial, industrial, retail and residential. Pooled funds also only require a modest amount when compared to direct investments in property.
What are its benefits?
- Investing in property, whether commercial or residential, can be a dependable source of income both from rent and capital growth from the property’s underlying increase in value.
- As the Nigerian economy grows, agriculture modernises, mining and industry develop; the value of commercial land and buildings will increase.
- Equally as personal wealth increases, leading to a re-emergence of the Nigerian middle class; upswing in rural-urban migration continues and mortgages become more understood and available, the prices of residential property will also rise.
- Not to be underestimated is also the emotional reward and sense of stability that comes from owning property. It provides security and an asset to pass on to loved ones.
- Property investments are especially attractive if one can obtain a mortgage at a relatively good rate. This is because a mortgage enables you to buy and enjoy the lifestyle and investment benefits of a property well before you are able to buy it outright.
Is it for me?
You don’t have to be enormously wealthy or a property speculator to benefit from investment in land and buildings. Property investment, particularly with the growth in mortgages, should be viewed as an essential part of a balanced portfolio of investments.
There are however, some disadvantages:
- Property prices can fluctuate, although typically less than equity prices.
- You also need to be aware that investment in property is not a liquid form of investment. There may be times when finding the right buyer for your property is difficult and you may be forced to sell below market price if you need to need to sell quickly.
However, you can take advantage of the opportunities in the property market without participating directly by investing in a property fund which employs the relevant expertise needed to get it right.
What tips can ARM provide?
- If buying a residential property you need to be mindful to buy in a suitable location and at the right price.
- Shop around for the best mortgage (we can help) and be aware of the potential fluctuations in mortgage rates before committing yourself.
- If you buy property to rent, you have to be aware that good tenants can be hard to come by. Make sure you get them to sign a legally-binding tenancy agreement.
- Don’t forget that property is not a liquid asset.
- Don’t invest in commercial property unless you have the requisite expertise.
- If you want exposure to a broad range of property then invest in a managed fund with a property focus or a listed real estate trust.
How do I start?
ARM has a property investment vehicle, Mixta through which you can benefit in the performance of a basket of commercial and residential real estate investments.
You can also invest directly in other real estate opportunities available through ARM. For more information on how to invest as well as other real estate opportunities available in ARM, contact an ARM Wealth Advisor.