Despite high Return on Investment (ROI) of bitcoin and equities in the last one year, experts in the housing sector are of the opinion that real estate remains the preferred investment opportunity and best hedge against inflation. DAYO AYEYEMI, reports.
Real estate has the historical record of being the best investment to hedge against inflation.
Apart from excellent rates of returns over the years, real estate has been a great investment for a lot of reasons not limited to tax advantages and wealth’s building.
However, events in the last one year in Nigeria’s top performing markets have seen Returns on Investment (ROI) in bitcoin and equities surpassing real estate.
Return on investment (ROI), according to investopedia.com, is a measurement of how much money or profit is made on an investment as a percentage of its cost.
Among four investment opportunities, according to the latest report by FDC, bitcoin and equities out performed real estate and treasury bills within 12 months.
The September’s economic analysis presented by the Managing Director, Financial Derivatives Company (FDC) Limited, Bismarck Rewane, listed bitcoin, equities , real estate and treasury bills as the best hedge against inflation in the last one year.
Among these investment portfolios, he stated that bitcoin yielded the highest returns in the last 12 months, followed by equities and real estate.
In his analysis, he explained that if someone invested N10 million each in the last 12 months in equities, bitcoin, real estate and treasury Bill, his returns on each investment would amount to 54.85 per cent (N5,485,000); 335 per cent (N33,500,000); 15 per cent (N1,500,000); and 6.8 per cent (N680,000), respectively.
On why returns on bitcoin and equities surpassed that of real estate in the last 12 months, Rewane has this to say: “High risk investment either earns you a robust reward or a handsome loss.”
He pointed out that real estate has a historical hedge against inflation.
Experts’ views
Despite bitcoin’s over performance, experts in the real estate sector insisted that their sector remained the preferred investment’s portfolio by investors any day, saying it has historical hedge against inflation.
Speaking with Nigerian Tribune when interviewed at the weekend in Lagos, former Chairman of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Lagos Branch, Pastor Stephen Jagun, described investment in Bitcoin as “artificial” unlike real estate, saying it could crash any day and that people’s wallets could be clear up by the wave.
According to him, real estate is something one could see, saying this made it impossible for it to crash overnight unlike bitcoin. “The worst that can happen to real estate is fire,” he said.
Jagun said “One of the problems of real estate is the exchange rates, in that, the higher the exchange rate, the higher the cost of real estate. If Nigeria’s mortgage sector is strong, it would have stabilised the real estate market.”
On equities, he stated that presently, equities have not been performing very well, adding that for this reason, most foreign investors are pulling out their funds.
“The more naira losses it values, the more people pull out their investments,” he said.
Lagos-based estate surveyor and valuer, Mr Femi Oyedele, maintained that returns on real estate investments are not in the same class as “volatile investments” returns.
“Real estate investment is an investment in concrete and steel and it is on rare occasions that you get competitive returns on real estate compared with bank deposit, shares, stocks and fast moving consumer goods (FMCGs),” he said.
According to Oyedele, people who are averse to “risky investments” go for real estate investment, adding that due to the long gestation period of real estate products, forecasts on real estate investment, in the short to medium term, have high probability of “correctness”.
He described real estate as ‘a straight forward investment involving simple calculations’, pointing out that participants in the sector were many and that data for analysing investment were easy to get and simpler to analyse.
“Let me add that the higher the returns, the higher your chance of losing your investment. Ponzi schemes have higher returns so that it can attract more people. I like real estate investment because it is usually a physical investment and not virtual like Bitcoin and cryptocurrency,” Oyedele said.
A real estate consultant, Mr. Chudi Ubosi described real estate’s returns of 15 per cent per annum as ‘fantastic to say the least’, saying it wasn’t low.
He explained that real estate has so many other qualities and characteristics that make it a preferred investment compared to crypto currencies that are new in the market with high levels of volatility.
“Real estate remains a solid and very certain and stable investment,” he said.
Lending credence to investments in real estate, another consultant and General Secretary, Association Professional Bodies of Nigeria, Delta State Chapter, Mr. Lewis Afolabi, argued that the level of volatility of investment in Bitcoin/equities was very high.
“As expected, the risk factor in Bitcoin /equities makes the returns to be higher. And because the return is higher it becomes very attractive to investors who want to make quick profit within a very short time,” he said.
On the other hand, he explained that investments in real estate are long termed and more stable than Bitcoin and equities. According to him, the advantage of a professionally guided investment in real estate was that the asset would appreciate alongside the inflation.
He said: “A typical example is a highrise building in a prime location constructed 30 years ago at the cost of N10 million. The market value of that same highrise may be around N300 million to N500 million today depending on the level of maintenance etc. Invariably that investment is able to beat the force of inflation.
“Investment in Bitcoin/equities does not have such staying power. It can collapse in a twinkle of an eye and the entire investment gone,” he said.
According to Afolabi, regardless of the attraction to Bitcoin and equities because of their mouth watering returns, real estate investment far outweighs them.
He advised that those who are interested in investing in real estate to seek proper expert)’ advice to do a thorough appraisal of the worthwhileness of the investment before launching into it.
Immediate Past Chairman, NIESV, Lagos branch, Dotun Bamgbola, stated that critical economic challenges seemed to have affected investments in real estate more than others recently, listing high cost of construction, depreciation in the value of the naira and high cost of imported building materials, among others.
According to him, the real estate sector is a reflection of the real production sector of the economy, adding that the aforementioned challenges might continue to affect it as they affected other industries in the real sector at the moment.
Crypto-currency
Bamgbola stated that bitcoin and equities have remained high risk investments based on trading, adding that they are not directly affected by critical challenges confronting real estate.
According to him, the possibility of loss in the high risk and volatile investments were reflected in their returns unlike real estate that could be projected more accurately and with lower risk.
He said: ”It is the higher the risk the higher the returns. You can lose your investment in Bitcoin in seconds or lose your investment in equities within a day or a week, but in real estate you have that cover because it cannot be undervalued by an economic policy in just one day. The risk is measured.
“For Bitcoin, it has been argued that there was no parameter or basis of its value appreciation or performance, per se. It has been mainly a reflection of the cryptocurrency platform pushing its volume of trade. “
The major advantage driving the acceptability of Bitcoin, he said, was the ease of liquidity, particularly via the online platforms.
“This is the same for equities too. The basic exception is that equities are regulated and the perceptions of the trading values are based on some reasonably defined fundamentals traceable to the companies on equities. However, Bitcoin is not regulated and there are no defined fundamentals. This is unlike real estate which requires a lot more process,” Bamgbola said.
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