A number of Economy Post‘s readers have requested an investment analysis from time to time. As a result, we have decided to offer this to our readers at least once a week. As much as Economy Post tries to dig dipper into areas the mainstream media ignore, its strength also lies in investment and wealth analysis.
Today, our focus is on stocks and real estate. Many a time, people wonder whether to put their money in either of the two or both. In fact, many of the investors mentored by Economy Post said they preferred to place their bet on real estate rather than stocks. The real estate, to them, is visible but stocks aren’t. In fact, unless you receive a purchase response or invoice from your stock broker, you would probably not think that you have made a transaction. But here is a detailed analysis to guide you on the best investment choice.
Let’s start. The real state is in high demand, especially in cities like Lagos, Abuja, Port Harcourt, Onitsha and Ibadan. This is understandable as everybody needs shelter, which is one of the three biggest needs of man. Nigeria’s housing deficit is estimateed at 28 miliion units, according to the Federal Ministry of Housing and the Federal Mortgage Bank of Nigeria (FMBN) data. This gap is a huge opportunity, especially in city centres.
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Returns in a real estate venture can move from 20 percent to 100 percent overnight due to high demand. But the situation depends on asset location and availability of titles. Also, real estate is sensitive to development. If the government is setting up an airport or a private businessman is building a gigantic factory in a particular location, the demand for real estate and prices of real estate assets in that area will jump.
For instance, 10 years ago, a plot of land went lower than N200,000 in Aguleri/Umuleri axis of Anambra State. But since the Anambra airport sited an airport in the area, land prices have gone as high as N5 millon to N10 million per plot.
Generally, returns on residential real estate have averagely stood between 4 and 10 percent in Nigeria in recent times. This means if you builld a house and rent it out it to residential tenants, your returns after recouping your principal could be less than 10 percent annually. But commercial real estate returns can be higher. Their returns go as high as 12 or 15 percent. That is, if you build a house for businesses to occupy, the rents would be higher.
Shortlet returns are, nevertheless, much higher. That is, if you build a house and rent it out for a short period of time, the returns can range from 10 to 30 percent, according to data. “Short-let rentals like Airbnb are the latest trend. Travellers prefer serviced apatment over hotels. This has opened huge opportunity for property owners,” said Esso Properties.
Generally, when you buy land or housing asset and keep it for a number of years, the value appreciates. You can buy a piece of land for N3 million per plot in 2025 and sell it for N25 million in 2025.
However, it is not all uhuru for real estate assets. It is high-risk as a new government can revoke your land titles for as frivolous reason as politics. Also, the location may be a security-risk for the people due to kidnappping or armed robbery. It may also be prone to flood like many areas in Lagos Island. If that happens, the property values would begin to fall. Also, residential real estate, which Economy Post experts consider high-risk, could pit you against your tenants.
Stock performance
Stocks are also risky assets. But they are profitable, really profitable. By the end of 2020, the Nigerian Exchange (NGX) was named the best-performing stock market among the 93 equity indexes tracked by Bloomberg across the world, returning 45.7 percent even amid COVID-19 pandemic.
In 2021, NGX All Share Index returned 6.1 percent, driven by recovering corporate earnings and improved investor sentiments, according to the NGX Group. NGX Oil and Gas Index returned 52.52 percent, putting millions of naira into investors’ hands. Nigerian equities market rallied by 19.98 percent in 2022.
By 2024, the NGX returns had stood at a remarkable 37.65 percent gain to investors. The All Share Index (ASI), which tracks the market performance, jumped from 28,843 points in January 2024 to 40,270 points, outperforming markets like S&P 500 and FTSE 100.
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At the beginning of 2024, Juli Plc started 2024 at N0.59 share price but ended the year at N10.30 share price, indicating 1,646 percent gain. This means that if an investor had put N10 million on Juli Plc by the beginning of 2024, they would have walked away with N26.5 million in December. Good investment, right?
Similarly, Sunu Assurances’ investors amassed 877 percent gain in 2024, beginning the year at N1.10 share price and ending at N10.75 share price. Investors walked off with millions as a result of this stock. If you were an investor and had put N10 million in early 2024, you would have taken additional N8.8 million off the market.
The once-struggling Oando Plc closed the year with 529 percent appreciation, beginning 2024 at N10.50 share price and closing at N66. Economy Post had explained factors that led to a change in fortunes for Oando Plc, including the petrol subsidy removal and Mr Bola Tinubu’s emergence as the president.
Eunisell Interlinked gained 520 percent in 2024, beginning the year at N3.20 share price and ending 2024 at N19.27. If you had invested N10 million, you would have walked off with extra N5.2 million by December 2024. Transnational Corporation (TRANSCORP) gained 402 percent, starting the year at N8.66 and ending at N43.50.
Which investment is better?
In the short term, the financial market has outperformed the real estate sector. Stocks have turned several players into millionaires and billionaires in the last two years due to their high level of appreciation.
However, the real estate is a long-term investment and can turn a pauper into a millionaire in a matter of years. Nevertheless, the proper thing to do is to diversify: Put some money into real estate and the rest into stocks and other investments. In fact, real estate can take 40 percent of your income, while stocks, mutual funds and other fixed income assets can take the rest. You may choose to invest more in stocks and less in real estate – it’s all your choice.
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But do not put all your eggs in one basket. If your eggs break, you will lose all. Spread your investments. Don’t keep your money in the bank; invest it somewhere so that it can work for you.
