Mosun awoke with a start, the remnants of her dream fading away as she blinked in the early morning light. She had dreamt of owning land – not just any land, but acres of empty plots on the outskirts of Lagos, ready to be transformed into a future community. As a real estate agent struggling to grow her small agency, Mosun knew land banking could be the big break she needed. She jumped out of bed, her mind whirring with the possibilities. If she could somehow get the financing, purchasing inexpensive agricultural land and holding onto it as the city’s boundaries expanded could allow her to sell it for many times its original value. She might go from broker to real estate mogul overnight! Mosun smiled as she brewed her morning coffee, the details of her land banking scheme taking shape. She was going to make it happen, she could just feel it. This was her chance to build real wealth – not just for herself, but for her clients too. The future was bright.
Introduction
Land banking involves purchasing vacant land or agricultural land to hold onto it as an investment until circumstances cause its value to increase significantly [1]. The land can then be sold for a substantial profit [2]. For the real estate investor, land banker, or agent, it represents an opportunity to grow wealth while contributing to housing development and economic growth.
In Nigeria and other developing countries seeing rapid urbanization, land banking focuses on cheap rural land on the peripheries of expanding city boundaries [3]. As demand for housing rises with population growth, this once-vacant land increases in value [1]. Infrastructure improvements like roads and electricity also boost value.
While land banking requires substantial upfront capital and carries risks, it enables investors to turn raw land into a lucrative income source [4]. This article explores tips for evaluating land banking deals, adding value through infrastructure improvements, and ultimately selling for maximum profits.
Key Factors in a Land Banking Investment
Several key factors determine whether a land banking venture will deliver good returns:
1. Location
The most critical factor is purchasing land along major growth corridors and boundaries of large metro areas [1]. These outer lands will appreciate most as the city expands. Nearby landmark projects also boost value.
2. Land Use Regulations
Investigate zoning, development plans, and land use regulations to predict areas of future housing demand [4]. Lands designated for residential or commercial development have the most potential.
3. Access and Visibility
Lands already connected to transportation networks and utilities will command higher sales prices [2]. Improve visibility by clearing road frontage plots if possible.
4. Purchase Cost
Aim for the largest, lowest-cost land parcel possible [3]. Raw vacant lands in undeveloped areas offer the cheapest prices and room for appreciation.
5. Economic Growth Trends
Research population growth, industry investments, and public projects to target the most rapidly expanding cities positioned for real estate growth [4]. These trends fuel housing demand.
6. Adding Value Through Infrastructure Improvements
Once suitable land plots are purchased, investors can improve land value in preparation for sale. Common strategies include:
7. Road Construction
Build access roads throughout the site to open options for subdividing plots [1]. Roads dramatically improve accessibility.
8. Electricity & Utilities
Extend electrical lines, water mains & sewer lines to the property edge at designated access points [3]. These prep grounds for construction.
9. Drainage & Earthworks
For low-lying lands, install drainage channels, stormwater systems and landfills to prevent flooding [4]. This makes more land usable.
10. Boundary Demarcation
Survey plots and mark boundaries at prospective lot corners [2]. This defines parcel dimensions for buyers. By making the site accessible, usable, and subdividable with access points in place, the land banker can enable buyers to immediately start construction. These preparations exponentially increase potential selling prices [2].
11. Optimizing Sales Proceeds
When the time comes to sell land holdings, several sales approaches optimize profits:
Subdivide for Phased Sales – Record a subdivision plan to delineate individual parcels [4]. Market in phases to realize price gains between sales.
Sell to Developers – Approach residential or commercial developers’ market rates for large consolidated parcels [3].
Auction High-Demand Areas – Consider auctioning off prepared plots in high visibility or amenity areas to drive competition [2].
Time Sales to Market Cycles – Monitor real estate and development cycles to identify peak pricing windows for sales [1]. Cycles significantly influence prices.
Through selecting the best plots, improving infrastructure, subdividing, and marketing strategically over time, savvy land banking investors can maximize investment returns while supporting local development.
Conclusion
For Nigerian real estate investors and agents like Mosun in our opening story, land banking represents an appealing path to profit. It allows leveraging expanding city boundaries and rising housing demand to secure appreciation of vacant land assets over time. While land plays the long game, requiring substantive initial financing and preparations, sizable returns are possible. By targeting key corridors, enhancing site utility, planning improvements, and engineering sales or auctions wisely, investors turn raw land into real estate income machines. Land banking plays a critical role in supporting growth and housing supply amidst Africa’s dynamic development story.
Key Takeaways:
– Target land investments in high-growth areas on city peripheries and along key transportation routes
– Research zoning, land regulations and local development plans
– Improve land value by installing access roads, utilities and drainage systems
– Subdivide plots and prepare incremental sales to maximize returns over time
– Time sales and auctions to match peak pricing cycles
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References
[1] Eves, C. (2021). A study on land banking and housing price volatility. Cities, 112, 103197. https://doi.org/10.1016/j.cities.2021.103197
[2] Ayon, X. B. (2021). Do amenities really matter in land valuation and real property taxation? Heliyon, 7(5). https://doi.org/10.1016/j.heliyon.2021.e07001
[3] Bin, G., & Ong, S. E. (2022). Real estate developers’ bidding behaviour in land auctions: A case study of Wuhan, China. Land Use Policy, 112, 105850. https://doi.org/10.1016/j.landusepol.2021.105850
[4] Glumac, B., Han, Q., Schaefer, W., & Van der Krabben, E. (2021). Negotiation frictions in land development: What, who, and how much? Land Use Policy, 102, 105261. https://doi.org/10.1016/j.landusepol.2020.105261
