Saturday, June 3, 2023

Financial Advisor Explains Why Land is a Bad Investment in the Current Economy

By Benson Bundi

Why Land is a Bad Investment: Kenya’s economy has experienced a steady decline since the COVID pandemic, and this has had significant implications for the real estate industry. Although many Kenyans have traditionally viewed investing in land as a safe and reliable investment strategy, recent economic indicators suggest this may not be the case.

Gichuki Kahome, a financial advisor and CEO of Coin Connect Kenya, outlines why land investments might be a bad idea in the current economy:

High land Prices

Land prices have risen significantly over the past decade, outpacing the economy’s growth. This has made land an increasingly expensive investment and many Kenyans have had to take out loans to buy land.

However, with the economic decline, many people have lost their jobs or seen their income reduced, making it harder to keep up with loan payments. This has resulted in a rise in loan defaults and foreclosures, leading to a glut of land on the market.

As supply has increased, land prices have fallen, leaving many Kenyans with properties worth significantly less than what they paid for them.

Undeveloped land doesn’t generate any cash flows.

Unlike rental properties or stocks, which can generate cash flows through rent or dividends, undeveloped land does not generate income. This means that if you buy land, you are relying on its appreciation in value to make a profit.

While this may work in the short term if you buy at the right time and sell quickly, it can be risky in the long term if the market turns against you.

Decrease in Demand

Economic decline has had an impact on the demand for land. Many businesses have closed down, decreasing the number of people who can afford to buy land.

Additionally, the government’s austerity measures have reduced public spending, resulting in fewer infrastructure projects that would drive up demand for land. As a result, many landowners are finding it increasingly difficult to sell their properties, which has led to a further decline in land prices.

Land is very illiquid

Land is very illiquid. Selling land as an individual can be difficult, as there are often few buyers and a limited market. Therefore, if you need to sell your land quickly, you may struggle to find a buyer and may have to accept a lower price than you would like.

This illiquidity can also make it difficult to diversify your investment portfolio, as you may struggle to sell your land to invest in other assets.

It’s hard to determine the value of land

It is often difficult to value land as no single metric applies in all cases. In some cases, land may be valued based on its potential for development, while in other cases, it may be valued based on its location or the natural resources it contains.

This can make it difficult to know if you are getting a good deal when you buy land, and it can also make it difficult to understand when to sell.

Land doesn’t always appreciate

While some people may be comfortable holding onto land for a decade or longer in the hopes that it will appreciate, others may prefer to invest in assets that generate cash flows in the shorter term.

Additionally, there is always the risk that land may not appreciate as much as you had hoped or may even decrease in value if the market turns against you. Overall, while land can be a good investment in certain circumstances, it is essential to consider the risks and drawbacks before investing.

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