A highbrow house in Abuja
By Yinka Kolawole, with agency reports
Shelter is one of the most basic human needs everywhere in the world. The shortage of suitable accommodation in Africa is pushing up rent and property prices in several cities and towns across the continent, making it one of the hottest and most promising places in the world for real estate investment. Smallstarter.com notes that the boom in Africa’s real estate market is a juicy opportunity for entrepreneurs to exploit and become successful property owners. The following are some of the reasons why investment in real estate is attractive.
Provides steady cash flow
When you buy or build a house, and rent it out to tenants, that property starts to earn you rental income (monthly or yearly depending on the contract with your tenants). With the high demand for accommodation and growing inflation, rent prices are always on the rise. Higher rent prices mean more income for you, the landlord. Compared to other investment options, the income from real estate is the most steady.
For For instance, the amount of dividends paid by many companies often fluctuate and may not be paid every year. Bank savings (another form of investment) usually attract interest payments that may be steady but are often very small compared to the returns you can get from investing in real estate. Because the income from real estate investment is steady and predictable, you can plan better. Rental income is also great for people who are planning for retirement.
Usable as loan collateral
Collateral is one of the biggest obstacles faced by entrepreneurs in obtaining a bank loan to start a new business or acquire property (such as a factory, machinery or equipment), especially in Africa. When banks ask for collateral, they want something that is equal to or greater in value to the loan amount you are asking for. Banks usually prefer real estate as collateral because it is known to continually appreciate in value.
Unlike your car which loses value every day, the value of real estate properties are more likely to grow. And compared to stocks (which some banks accept), the value of a property cannot vanish overnight. As a result, an investment in real estate means that you can use the properties as leverage to get a loan from a bank and other lenders. Only very few other investments can give the kind of leverage that real estate can.
High return on investment
Real estate always grows in value, especially in developing regions like Africa where the property market is not as matured like in North America or Europe. Lagos, Nairobi and Luanda are some of the African cities that are currently rated as hot property markets. Due to the huge demand for shelter in many African cities, the returns on real estate investment are one of the highest in the world.
Although buying and selling of real estate should not be your main investment goal, it is your insurance that should you need to sell your property sometime in the future (for whatever reason), you will still make a handsome return. You can earn rent income for many years or you could sell the property. Either way, you make money and earn a profit on your real estate investment.
Low risk investment
We have heard of stock market crashes and banks going bankrupt. Although real estate values often fall, it is not usually a very bad situation. In fact, even when property values fall, you would still earn rent income from the property. On the other hand, real estate is physical and tangible compared to stocks, bonds and many other intangible forms of investment. Both in times of high inflation, economic boom and bust, real estate investments remain robust and will most likely continue to earn you income. Very few other investment options can do the same.