Is 20 years too long to invest in land?

A few years back, one hot Saturday afternoon, I accompanied a colleague to check out one of his investments in a not-so-distant place on the outskirts of the city. It was a piece of land, 50 x 100ft in size, nothing impressive save for the fact that he had planted a few trees on it. While there, he mentioned something that left an indelible impression on my mind.

“We just had a baby, and this was the grandfather’s gift to him, he always does this for all his grandkids”

This was the first time I had heard of such a foresighted investment by someone who had no plans of reaping the rewards themselves but hoped that someone else would be thankful for it in the future. Perhaps Granddads have been on this earth long enough to appreciate something about the value of time. Clearly, they understand the need to invest over the longer horizon.

I imagine that these kids will not be in a hurry to sell off these assets. They have at least 20 years before they even recognize the property’s worth. This is enough time for the land to gain astronomical appreciation in value. I can picture the smiles on their faces, two decades later, when they finally need to make use of the property.

I'm in awe of the wisdom of this grandfather, who thought it necessary to put aside a few million Uganda shillings, for the sake of his grandchildren’s future.

Why do I think this was such a brilliant idea?

1.      Reduction of risk

Over the investment period, a lot of things can happen. Economic downturns, hyperinflation, change of government, and the like. All these could affect the value of assets in the economy, apart from land.

Due to its physical nature and limited supply, it is highly unlikely that it will plummet in value over this period. Historically, the value of land has not fallen ever in the Ugandan market. Even when there may be occasional periods of slow growth, over the long term, the value keeps increasing. The longer your investment horizon, the less day-to-day events influence your investment performance.

2.      Riding the exponential growth period.

Every area that develops experiences a period of high increase in the value of land. Usually, 5 to ten years of rapid transformation. It can be hard to time this period as a speculative investor looking for short-term investments. Many land investors miss out on this opportunity by either selling too early or buying too late. On the other hand, a person who invests for the long term before the area undergoes development is sure to ride this wave at one point in their investment horizon. This timing ensures that you reap a huge return on your investment.

3.      Fortune favors the prepared.

In some cases, land may produce unexpectedly high returns on investment. This often happens when someone else gains interest in a property, for which they are willing to pay any price. This may be for various reasons that the owner has no control over. For such opportunities to come your way, only the passage of time can determine. Investing for the long term enables one to expose themselves to the possibility of benefiting from such events.

Here is the lesson. It didn’t cost the grandparents much to invest in land. This is because they bought in undeveloped areas, long before prices started to shoot up. They had time on their side because they were investing on behalf of newborns. By the time the children are grown enough to need the assets, the value would be so high it would cost an arm and a leg to acquire land in those areas.

When making investments, do not be blinded by short-term prospects because they prevent you from taking advantage of the power of time. The greatest opportunities exist in the long term and savvy investors focus on maximizing these.

To learn more about investing in Uganda’s Real Estate industry, visit https://www.barosgroupltd.com/

About the author;

Benard Sonko is a real estate investment manager and founder of Baros Group Limited. For comments and inquiries, you can reach him at +256742140251 or info@barosgroupltd.com