Land Banking is a Real Estate investment strategy that involves purchasing land with the intention of holding onto it for a long period of time. The idea behind land banking is that the value of land will appreciate over time, providing a profitable return on investment. In this blog post, we’ll explore the definition of land banking, its importance, and an example of land banking in Uganda.
Definition of Land Banking
Land banking is the process of buying undeveloped land in anticipation of future development. This land is typically located in areas that are expected to experience significant growth and development in the future. Land banking involves purchasing land and holding onto it until the value of the land increases, at which point the land can be sold for a profit.
Importance of Land Banking
Land banking can be a lucrative investment strategy for several reasons. First, land is a finite resource, and as populations grow, the demand for land increases. This means that over time, the value of land tends to appreciate. Second, land banking can provide a hedge against inflation. As the cost of living increases, so does the value of land, making it a valuable asset to hold onto. Finally, land banking can be a relatively low-risk investment compared to other forms of real estate investment. Unlike rental properties, land does not require maintenance or upkeep, making it a passive investment.
We take a story from Fahad Bruhan Jr
“Few days back, I was talking to someone who bought a plot in early 2010 in the outskirts of Kampala for 7m. The intention was for construction, however challenges came along. The person held on the plot. Right now, similar plots in that area go for more than 40m.
Land banking as the word says, is putting (investing) your money in land for 1- safety, 2- growth, in value as an investment. You buy land usually in big chunk, hold and dispose with the intention of making profit.
Most real estate companies selling plots are in the land banking business at large commercial scale. They buy a big chunk of land, usually in acres, then plan an estate, plot the land, either sell immediately or hold for sometime then sell.
Land banking is one of the safe, low risk investments for people who have the financial capacity – cash saving – but don’t have the time, maybe because they have full time jobs, or they don’t want to take on the high risk investments like business for whatever reasons.
You don’t have to be or own a company to invest in land banking. You can invest in land banking as an individual or a group.
The person I was talking to few days back who bought a plot for 7m Ugx, held their money safely (banking) in land. If they decide to sell the plot at a future time (right now for more than 35m), they’ll earn a profit, that is Land Banking at individual level.
This is supposed to be a blog post. I mean a long post!
Approaching Land banking as an Investment.
As an Individual.
If your someone who is having a stable, good paying job, and have some extra saving which is not allocated for anything in particular, Instead of keeping the money in the bank which is risky interms of inflation and accessibility, invest in land banking by buying land/plots.
Identify lands/plots in your financial capacity – saving rate, in areas with growth potential. Then save your money in the land and let it grow in equity.
I have never bought land for building personal house, I don’t have the capacity yet, I also don’t think it’s a wise use of money for me as an individual. However I have invested in land banking at individual level.
As a Group.
One of the challenges for people wanting to go into land banking is capital. Most of us don’t have the financial muscle to invest in land banking as individuals. We can do it as a group.
The group can be trusted friends, a Sacco, an Investment Club through Collective Investment Scheme – CIS. One of the investment clubs I belong to has holding in land banking.
As a group, investment club, sacco, when you’re going to invest in land banking, it has to be a decision from onset, with clear entry strategies and a long term one. Land banking is a long term play.
Have a discussion on the idea as group members, agree to pull financial resources together for a certain period of time while identifying and acquiring lands with good future potential.
Key Pointers to Consider When Investing in land banking.”
To be continued..,
Disclaimer: This is not an investment advise.
Story Credit: Fahad Bruhan Jr
Conclusion
Land banking is a real estate investment strategy that involves purchasing land with the intention of holding onto it for a long period of time. Land banking can be a lucrative investment strategy for several reasons, including the finite nature of land, its potential to provide a hedge against inflation, and its relatively low risk compared to other forms of real estate investment. In Uganda, land banking has become an increasingly popular investment strategy, with the Mukwano Group being a prime example of successful land banking efforts in the country.
