Over the years there has been an unspoken golden rule amongst real estate investors and experts in the property market and that is, “land appreciates and houses depreciates”. The question then is, what’s the impact this rule has on the mindset of potential investors in the real estate and property market? Does it limit you to certain types of properties and perhaps exclude you looking at all the investment opportunities that are out there in the market?
The premise for “land appreciates” as I understand it is that, the intrinsic value of a property is based on the land content, the geographical location and the industrial and commercial developments. So the conclusion most people would come to is that the bigger the land content and developments the better the property value and potential investment growth.
The premise for the “houses depreciates” is that the value of the house depreciates over time, just like a car or an electronic device, making it a bad investment but of course this is not fact. The truth is, Houses have the tendencies to appreciate in value overtime also. Investing in property is all about buying a property that will appreciate in value over time and deliver capital growth.
Therefore, there must be other factors we need to consider which invariably means and amendment of the Golden Rule is required and that is, “Land Appreciates; Houses are depreciable”.
If we’ve come to the consensus that land appreciates, then we need to ask ourselves why it is land has such high appreciation value rate overtime. It is not all about the internal factors like the size and content of the land but also about some important external factors like the geographical location of the land, the developmental factors around said locations and the availability of some basic but yet important life amenities. To put it in a nutshell, it is all about supply and demand. If you as an investor can buy property that everyone wants early enough, it automatically becomes a potential growth asset with a very high appreciation value rate.
A very good example are the lands currently selling out at ibeju-lekki in Lagos Nigeria. Due to the massive industrial and commercial developments in connection to the Dangote refinery happening at ibeju-lekki currently, it has become a very prime spot for real estate development in Nigeria and Africa as a whole.
When researching for property to buy, if you stick to the premise it is all about houses and the land content, you may be missing out on some great opportunities. You are trying to buy the best affordable property, in the best potential location with all the best drivers for growth, the best rents and the most amount of tenant demand. It could be a house, it could be an apartment, a duplex, a villa or a townhouse.
The Golden Rule should never serve as a limiting factor but rather as an intrinsic exponential growth guide that affords potential real estate investors a different point of view when analyzing the property markets for potential investments which invariably will increase their percentage return on investment.