SPECIAL FEATURE INVESTMENT
“Buy land. They’re not making it anymore.”
Private investors who heeded the words of American author Mark Twain over the past decade will have profited happily.
Land has always been one of the most secure investments. Land is a tangible low risk (when properly managed) asset class and has been producing wealth for landowners over the years.
One of the main characteristics of land is the actual possible use of it. So there are different types of land use , and experts have created a list of the eleven most important types of use around the world. :
The eleven types of land uses are:
1. Residential Land Use – where people live (houses, apartment buildings)
2. Institutional Land Use – government related (schools, town hall, police station)
3. Recreational Land Use – for fun, entertainment purposes (parks, bowling place)
4. Open/ Vacant Space Land Use – empty land
5. Commercial Land Use – places to do with [making] money (stores, banks)
6. Industrial Land Use – working places that help industry (factories)
7. Agricultural Land Use – land used to grow food etc. (farmland)
8. Railway Land Use – railways
9. Transportation Land Use -to do with transport (bus stops, roads)
10. Government Land Use ] } like “institutional”
11. Utilities Land Use – like hydroelectricity and power stations
Investors usually focus on land with residential or commercial use. In Kenya these 2 types of land have been performing well due to the urbanization fever that is all over the country the last decade and the speculator’s interest into this type of easy real estate investment. The land values though in urban areas are directly connected with the property market and the affordability of the population to buy property. That is what determines the volatility of the market and this is why it is noticeable that property values in urban areas can fluctuate over the years creating big profits as well as big losses.
Land investors are usually focusing into BUY to SELL models of investment as urban land is hard to create any other yields. They base their speculation on the demand for housing and commercial buildings.
On the other hand, there are other types of demand that are related to real estate. On the demand side, much of the growth in population and food consumption will occur in the developing world. As income levels rise in developing countries, consumers there are consuming more meat. Livestock production consumes massive quantities of grain and water, spurring farmers to boost both crop yields and land under cultivation.
Soaring demand for biofuels is another significant demand factor. In the U.S., for example, ethanol production accounts for 23 percent of total corn utilization, according to the Renewable Fuels Association. The list of opportunities is huge and they are all connected with land and farming or plantations.
Many people very often say that it would be ideal if someone could combine a land investment with an annual return produced directly or indirectly by the land.
For anyone who lives in a country where farming has been traditionally one of the main sources of the economy it is not a secret that huge fortunes have been made via farming. The problem with modern times is that someone who likes to live and work in a big city in order to enjoy the benefits of been in an urban area, cannot same time easily run a farming business.
Then again nowadays there are several options for someone to combine both, living in the city and be a successful farmland investor. The last decades around the world a new trend is gaining more space day after day, it is called managed farms. A professional established forestry or farming corporation is setting up a big fully managed plantation or farm .Someone can buy his own piece of land part the big plantation or farm and the corporation will fully manage from A – Z the farm for a reasonable management fee . There are different types of managed farms available around the world but the ones who have been proven to be the most successful are the ones that are fully managed and are providing a vertical line of managing – process and marketing a plantation –farm usually for a specific crop or tree.
They key to success is the combination of knowledge, experience size (that is reducing costs) ,and the ability to penetrate the markets in order to sell the processed product fast and for a very good price. Usually the companies who are running this type of farms – plantations following the modern portfolio theory prefer to grow crops or trees that have several alternative uses either as a raw material or final product and can produce income at least once per year after a maturity period, in order to create constantly growing yields for the investors.
A very good example is the bamboo plantations. Bamboo farming is popular in several countries around the world like in China and the US .Demand for bamboo is growing over the years as more and more alternative uses are available. In developing countries it is a basic raw material with numerous traditional uses. Bamboo has many applications in rural industries (handicrafts, furniture, utensils and houses) and it is also widely used in modern wood and paper industries. Governments, research institutions, and private enterprises are taking increased interest in the environmental and economic possibilities of bamboo. In the last decade, there has been a boom of manufacturing industries utilizing bamboo world-wide. So bamboo can be used for simple things such as charcoal , scaffolding, furniture, clothes, accessories, yearn ,eco-houses as well as more complicated products like bamboo biomass (energy production) , activated charcoal, bamboo nanofibers with prices reaching in some cases over 2000 usd per ton .
The bamboo market is a market that has a turnover of over 20billion USD in raw and processed material and can be harvested at least once per year .On average an acre of high quality bamboo plantation will produce over 30-70+ tons of bamboo per harvest, respectively, depending on the type of bamboo and the specific characteristics of the plantation. Unlike most timber, bamboo is a self-regenerating natural resource; new shoots that appear annually ensure production after individual culms are harvested.
Bamboo is very special. It is a fast growing natural resource whose rate of biomass generation is unsurpassed in the plant kingdom. It is without doubt one of the most important non-wood forestry products and one of the most important agricultural plants in the world.
Bamboo is a plant that provides considerable environmental benefits. It is used for ecological purposes such as soil stabilization and erosion prevention on hill slopes and verges. It is a very important forestry plant which is harvested from existing natural forests, plantations, and mixed agro forestry systems. Bamboo silviculture is a option for conserving and protecting tropical forests while creating enduring supplies for the wood and cellulose industries.
There has been a growing awareness in recent years that bamboo is a vital component of development and an effective means to improve the livelihoods of rural poor people. Over 600 million people generate income from bamboo; hundreds of millions of people in the world live in bamboo houses. Bamboo is a natural vehicle for development and wealth creation.
It can be quite easily grown but under professionally managed agro forestry schemes a bamboo plantation will produce more . Bamboo agro forestry requires a modest capital investment and generates steady income to investors.
During the last decade, increased knowledge and research about bamboo has had a tremendous economic impact and has given rise to many new industries and products. In China, for instance, income from bamboo products has increased seven fold in the 1990s due to an emphasis on R&D. Many export markets have been opened and the development of innovative products is a continuous process.
Farming is not easy work. Investors have to decide whether to farm the land directly themselves or contract the work out or work with a farming management company who will take care of their investment.
For those who live in the city and want to combine capital growth with annual yields under the security of a land investment, today managed farming-plantations are the solution as an alternative progressive land investment that will minimize the risk while creating serious income and wealth.
Kenya has been suffering from the decrease of the agriculture sector the last years and is facing an account balance deficit as imports are bigger than exports. The Kenyan shilling has been struggling to stay strong but there is only one way to secure a strong economy , a strong currency and a promising future. Kenya needs to start producing and exporting as well as to minimize imports.
Real estate is usually a passive sector of the economy but combined with farming becomes one of the most lucrative possible investments around the world. Investors should start to think how to diversify their portfolio and create alternative sources of income with minimum risk .
A farm investment, no matter if that is apple mangos, corn, maize or bamboo , should be part of every modern investment portfolio.
REValuer by Tegova
Civil Engineer Msc-DBM
for Africa Plantation Capital