Background
Land speculation has become a land mine for many real estate investors in the past, irrespective of government effort to discourage it. Land speculation has been argued to be a retrogressive element in urban development. At its best, land speculation is a high-risk, high-return investment. At its worst, it is the playground of scam artists and rife with high-level collusion.
The purpose of land speculation is to buy undeveloped areas that are expected to see a building boom. Then you have the option of selling this land as developers move in or developing it yourself. Carrying out this simple plan, however, is often harder than people expect. In this guide, we will look at the issues involved with land speculation, and show you how to work with and around them.
Undeveloped land is cheap compared to buying land with property on it. If you can buy sections of land near an expanding population base, you can turn around and sell it during a building boom for a high margin profit.
Challenges
Land speculation greatly utters the urban development projections of government and as such is always aggressively targeted in most government regulations. This is why it has become a num to bring into any land agreement where government is a party, a clause mandating the other party to develop such land within a particular time.
Professional speculators probably do realize double-digit profits, but they often neglect to include the expense of holding the land while they wait for the economic growth. In fact, areas that are seen as “hot spots” generally sell land at a premium long before the developers will ever set foot on it. Therefore, effective land speculators have to buy very early and hold on (sometimes for years) to see the double-digit returns.
If the expected growth doesn’t boom like the speculator hoped or doesn’t happen at all, profit may completely disappear. To hedge against this risk, successful speculators buy land in multiple locations that meet a certain profile. This approach requires a lot of capital and research. Even so, if enough speculators are watching for the same profile, they will inadvertently drive prices up to a premium and shrink each other’s gains.
From the perspective of a small-scale real estate investor, land speculation is an expensive and risky investment. For these reasons investors should ask questions first and buy later.
Scams
Not to put too fine a point on it, never buy land you haven’t personally researched yourself. Always involve a solicitor for confirmatory due diligence no matter how much you think you may know. The idea that you should buy land from someone whose only proven skill is the ability to use a phone book or email to contact you, parading himself as a property agent is ridiculous. These land speculation scams are still very much with us and still surface from time to time.
Conclusion
Speculating in land requires large amounts of capital and research. The more property that an investor is able to control, the better the chances of seeing good returns – but the holding costs continue to tally on inactive land. If you have the knowledge, or the money to hire people who have the knowledge, then land speculation may be for you. If you don’t, there are far more accessible forms of real estate investment that also give you the thrill of holding a physical asset.
However, our Nigerian experience has actually shown that in real estate investment generally, you mustn’t really have to start big. Land speculation is still very lucrative in Nigeria and multiplies return on investment in the shortest possible time, All you need do is keep to the trinity (the what, where and when to buy).
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