27th September 2022 (Punch Newspaper) By Edidiong Ikpoto
With record levels of inflation upending the logic of saving money traditionally through commercial banking, a new form of banking is gaining increasing traction, writes EDIDIONG IKPOTO
For centuries, the traditional banking system offered customers a platform to save money, either for interest or other purposes.
Historically, banking has been around since the first currencies were minted and wealthy people wanted a safe place to store their money.
Ancient empires also needed a functional financial system to facilitate trade, distribute wealth, and collect taxes. Banks were to play a major role in that era, just as they do today.
But, as is characteristic of human existence to evolve with the times and seasons, the banking industry itself has, by no means, been insulated from the paradigm shifts that have characterised different epochs of human existence.
Today, there are several forms of banking that have permeated into various spheres of human endeavour, including the real estate sector.
In principle, land banking is by no means a new concept. As a matter of fact, studies have shown that a vast majority of people who acquire landed properties do so with the intention of reaping future capital appreciation as opposed to acquisition for development purposes. What is new, however, is the terminology itself as well as the conscious efforts to create a niche for a fraction of the investing public who wish to purchase real estate as a means of saving money.
With rising inflation hitting the budgets of many, investors are beginning to question the wisdom of saving money through the traditional banking system.
Land banking, as the name implies, refers to banking via the instrumentality of land (real estate). The fundamental principle of this is that rather than put cash into a savings account (which will accrue little or no interest over an extended period of time) or the stock market (which can become bearish within the twinkling of an eye), some entrepreneurs have taken an alternative approach by acquiring land. In doing so, they have chosen to park money in a tangible, fixed asset – one with less likelihood of being damaged by inflation or a stock market pullback.
In a land banking scheme, property developers usually buy land, divide it into smaller blocks and offer it to investors. As an investor, you either buy a plot of land or buy an option to purchase a plot of land. These are known as “option agreements.”
One of the most well-known investors in land banking over the past years was John Jacob Astor, who used this strategy to become the first multimillionaire in the United States.
He realised the power of land banking when he purchased large plots of land which are now known as “Manhattan.”
He acquired this land at a time when nobody else realised the opportunity. At the time of his death, Astor’s estimated net worth would have been equivalent to $110.1bn in 2006, making him the fourth richest person in American history at that time.
Original article link:
https://punchng.com/how-land-banking-drives-nigerias-real-estate-market/WHAT IS BUY TO SELL?
VIDEO:
How Land Banking Works ... Practical Rewards by Akintayo
