Real estate or banking: Which is more profitable?

The internet has been buzzing recently following the statement by the immediete past chairman of Zenith Bank, Jim Ovia where he stated that real estate pays more than banking.

Nigerians have analysed the statement on social media with many arguing for or against whether property investment yields more returns than banking.

However checks by Daily Trust show that one of the major factors that reduce purchasing power of Nigerians has been rising inflation which has forced many individuals to pull out monies in their savings account and invest in a more viable venture that will give them better returns.

Experts react

Speaking to Daily Trust a real estate and investment expert, Joseph Momoh told Daily Trust that the argument on whether real estate pays more than banking is relative and can be looked at from different perspectives, noting that inflation has been one of the key factors eroding purchasing power.

He said “If you buy a plot of land in a good location and do the necessary due deligence to be sure that it is not fake, in five to ten years, the value of that land must have risen more than 1,000 per cent of what you bought it depending on the location, and thats why people always think it pays more than the interest you will get on your savings account when you save your money in banks,” he said

On the aspect of return on investments, he said “When you save your money in the bank or do a fixed deposit, your returns on investment are usually single digit per annum. However,  based on the rate of development in the area you purchase your landed property or building, the return on investment are often huge. When you buy a house for example and rent out, between a decade to two, you will have recovered your investment and you will continue to make profit for the rest of your life,” he added

Also speaking, a realtor, Bawa Musa said real estate has now become the most viable investments, arguing that saving money in the bank only make banks’ richer while investing in real estate makes the owner of the property richer

“If you have money in your savings account, the money will be used by the bank to invest in other financial instruments or to give

out loans and you will be paid an interest. The difference between the interest given by the customer who loans your money and the amount given to you is taken by the bank. Thus making the banker richer. On the other hand, when you invest in real estate, the difference between the price you bought the property and the price you are selling it is taken completely by you. As such, it makes you richer

He also added that “When you have money saved in the bank, no matter how disciplined you are, there will always be expenses that will arise to deplete the savings. But when you invest such funds into real estate, your cash is tied into an

investment that will be appreciating in value,”

Explaining it further, an investment expert, Mohammed Mustapha told Daily Trust that one reason ehy real estate attracts serious investors is that it can generate returns in multiple layers concurrently

“A savings account earns interest. Also, fixed-income investment generates yield. But a well-selected propertyhas the capacity to make your capital appreciate,

Increase your income from rent and shield your finances from inflation.

“Also, real estate serves as a hedge against economic shocks considering the fact that Nigeria’s economy is susceptible to external shocks like the ongoing tension in the middle east

“This has shown in the recent steady rise in inflation because of external shocks. In that cade,  investors often look for assets that can preserve value over time which is one of the principal reason why property continues to attract both local and diaspora investors.

Mustapha however cautioned that the explanation above does not guarantee that property prices always rise while noting that selecting the right asset is critical.

“Markets move in cycles which is why many investors view quality real estate as a long-term asset capable of weathering economic turbulence better than some alternatives.

“However, the phrase that property yields more returns than banking can create the impression that every piece of land or every building automatically becomes a profitable investment, which is not entirely correct

“Some properties appreciate significantly.

Others remain stagnant for years. Also, some generate strong rental income while thers struggle with vacancies.

The difference often comes down to factors such as location, the security and infrastructure around the environment,  demand and supply factors among others.

“This is why I maintain that investors in real estate know that asset selection matters and when you get it wrong, it will be difficult to get the required returns,”.

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