The Issue of Land
by andrew@JijiniMarkets - Mon 15 Jan 2007
Land has often been the cause of many family feuds and arguments and my family was recently victim to this. Ours was however more of an investment debate than a feud or argument. On one extreme end was my grandfather who is a strong advocate for buying - and holding on to - land under all circumstances. On the other not-so-extreme end was yours truly preaching the benefits of land only as a long-term investment made using residual cash resources after investing in more liquid, cash-generative assets such as stocks. In the middle sat my father, over whose assets we were debating.
Our parents' generation believed whole-heartedly in land and their parents believed in it even more. Indeed in traditional African culture land was almost a currency in its own right. However, for the modern day investor, land has two major draw-backs: if idle, it is not cash-generative and secondly it tends to be illiquid. This means that as an investment, it is at best a buy-and-hold asset requiring several years before capital gains can be realised and several months before it can be liquidated. Individuals that bought land in Runda, Muthaiga, Karen and Ongata Rongai in the 80s and early 90s are only now (a decade and a half later) realising substantial rewards of their investments. Worth considering as well is that these investments have not been entirely risk-free as investors whose land lies in the Nairobi by-pass zone or those whose land has been reallocated will testify to.
So I ask myself, 'Does land have any place in my investment portfolio?' The answer is still a resounding 'yes', although with a few caveats: One is that I will aim to buy land once I have invested in assets with a regular cash stream (stocks, rental property, businesses, etc); two, I will attempt to utilise any land I buy/own to generate regular income through relatively short-term activities (farming, leasing, etc) while I await capital gains in the long-term; finally, like everything else in my portfolio, I will always be ready to sell given the right price.
My grandfather would no doubt disagree.
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