“Real Estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, and managed with reasonable care, it is about the safest investment in the world.” – Franklin D. Roosevelt.
Deciding on whether to purchase a plot of land or buy a house is an excellent investment opportunity but it can be a tough decision for many, and both options come with their inherent advantages and disadvantages.
There are various issues to be considered which include: safety, security, proximity to family and friends, proximity to amenities and offices, good schools for children, good road networks, hospital services, power and water supply, 24 hours facility management services, and other obligations.
Once you are certain of what your minimum requirements are, it makes it easier to take a decision.
1. Initial capital expenditure
Purchasing land to build typically involves lower initial capital expenditure when compared to purchasing a house. This option is usually attractive to buyers who have limited access to funds but who are desirous of getting a foot into the property market or owning their first home.
However, due diligence is advised to ensure that the land being purchased has the required title documents and is free of encumbrances. Other considerations such as the geotechnical properties of the soil can add to the cost of the foundation and overall development cost. Master planning restrictions can determine if the land being considered is along a drainage path or road expansion zone.
In contrast, the initial capital expenditure for home buyers may be higher due to the development costs involved at inception which includes construction costs, design and building permits requirements.
2. Burden of responsibilities
When buying land to build, the buyer takes up the burden of various responsibilities which include, the cost of the land, design fees for consultants (architecture, structures, mechanical & electrical), planning approval, soil test and EIA reports (if applicable), certified true copy of title documents, various taxes, and other requirements which may vary from one region or country to another.
On the other hand, the burden of all these responsibilities is transferred to the Developer if the buyer decides to purchase a home. This translates to less stress and burden on the buyer.
3. Access to funds
One of the differences between buying land versus a home is how the loans are structured. Mortgages come in a range of options to suit your needs and budget, but there are much fewer options for purchasing land. Many land loans must be fully paid within two to five years.
Interest rates and down payments are also usually higher on land loans than on mortgages. A typical down payment can range from 30-50%. Securing a lower interest rate is a lot tougher, as land only loans are riskier for the lender since there really isn’t any collateral, such as a home. Therefore, lenders are less inclined to offer lower interest rates.
4. Limit of control
Purchasing a home usually constrains buyers to the choice of design, finishes and quality standards delivered by the developer. This can be a source of frustration if quality standards fall below expectation. As a result, the purchaser may need to spend additional finances to correct defects and retrofit the development to satisfy his or her required quality and design standards.
In contrast, land purchase offers the buyer more control over the entire building cycle and final product outcome. Buying land and having your own home built according to your specifications may be a much more viable option if you are particular about selection and quality of the finish, design features, cost control and timely delivery.
As a response to bridge this gap, innovative developers such as Mixta Africa have taken the initiative to deliver homes as shell only or a hybrid finish which give the buyer the flexibility of finishing the property to their required taste.
5. Cost of development
For residential estates, developers can take advantage of economies of scale to lower building costs. The cost savings realized can subsequently be passed on to the buyers, reducing the cost of purchase. Shared costs typically include power, stand-by power system, water supply, sewage, infrastructure, security, and overall maintenance.
In contrast, individuals who purchase land directly are solely responsible for the developmental costs for utilities and infrastructure which can be high.
At Mixta Africa, our serviced estates are delivered equipped with good roads and infrastructure, 24-hours power and security services and recreation facilities.
6. Opportunity for secured communal living
Rapid urbanization being experienced in most countries and Nigeria in particular is predominantly fueled by our large vibrant population. The country’s housing deficit as of December 2018 was estimated at a staggering 20 million units which is about 15% increase from the figures in January 2019. About N21 trillion will be required to finance the deficit. This housing gap has resulted in competition for limited resources, over-crowding in urban areas, and a strong need for a sense of security.
‘Custom-built’ residential estates offer a sense of security for potential homeowners when compared with individual land developments. These shared spaces can provide unique access to shared recreational spaces that include swimming pools, gyms, outdoor recreation and congregation areas, well-landscaped areas, neighbourhood shops, shared IT infrastructure amongst others.
In estates that are well maintained and secured, this sense of community has a positive impact on mental health and wellness which is an important consideration in the current clime.
At the Lakowe Lakes Golf and Country Estate, residents have the unique opportunity of living in a serene environment that boasts of an 18-hole golf course, beautiful lakes, and manicured lawns, with a selection of hospitality hubs.
7. Appreciation over time
Both buying options have the potential to appreciate over time. A property’s physical structure tends to depreciate over time, while the land it sits on typically appreciates in value because it is in limited supply.
The degree of depreciation and/or physical obsolescence varies from one property to another, but if left alone, properties continue to depreciate until they no longer add any value to the land.
It is therefore the responsibility of both the homeowner and Estate Managers to ensure that properties are well maintained over the years by adopting preventive, cyclical, and corrective maintenance strategies.
Mixta Africa is leading the transformation of cities in Africa by creating sustainable communities with high quality urban infrastructure and homes.
8. Risk of non or poor performance by Developer
Buying land means that the purchaser has the flexibility of developing the property at their own pace. In contrast, for those who choose to buy from developers, the decision carries the added risk of non-performance or poor performance by the Developer. As such, buyers are advised to take the time to enquire about the reputation and track record of the developer regarding timely delivery as well as the quality of delivery. This can save a lot of frustration and heartache down the line.
In summary, deciding to buy a home or to buy land for development is one of the most important decisions that we may have to make as individuals or families.
The risks involved are high and can impact positively or negatively on our finances, health, and wellbeing.
Prospective buyers are advised to look beyond the stylistic attributes of prospective home purchases and concentrate on a property’s potential for land appreciation. Focus on those locations that provide opportunities for improvement, which may enhance the value of the land.
The list of considerations highlighted in this article are not exhaustive but can act as initial considerations for decision making.
Careful deliberation, due diligence, research, wide-consultation and advise from suitably qualified industry professionals is advised.
Author: Titi Banjo – Project Development Manager, Mixta Nigeria