Land value has steadily increased in Australia for the past decades, with an annual growth rate of 6.8% over the past 30 years to March 2022.
With this growth, land banking serves as a good opportunity for finance clients. Land banking is a strategic investment approach where individuals or organisations acquire undeveloped land with the intention of holding it for future development or sale. It offers several benefits for finance clients looking to maximise their returns and secure their financial future.
Before diving into the benefits of land banking, it is important to understand the risks involved. These risks include lack of liquidity, location risk, development risk, and possible property bubble burst.
Despite the risks, land banking can be a good strategy for finance clients who are looking for a long-term investment with the potential for high returns. Prolifico discusses the top 10 benefits of land banking below.
Benefit 1: Stable Long-Term Investment
Unlike volatile stocks, land is a limited resource that maintains its value over time. With the ever-growing population and increasing urbanisation, the demand for land continues to rise, making it a sought-after asset. What’s more, land requires minimal maintenance and has lower holding costs compared to developed properties, which means less financial stress for you.
Furthermore, the potential for future development and long-term capital appreciation make land banking an attractive option for finance clients seeking stable returns.
Benefit 2: Diversification of Investment Portfolio
Land banking offers finance clients a valuable benefit: diversification of their investment portfolio. By including land assets alongside stocks, bonds, and mutual funds, clients can spread their risk across different asset classes and reduce the impact of market volatility.
Land’s low correlation with the stock market provides stability and acts as a buffer against potential losses. Its long-term growth potential complements other investments, while its tangible nature and connection to various sectors enable further diversification. Incorporating land banking into an investment strategy helps create a more balanced and diversified portfolio, managing risk and increasing potential returns over the long term.
Benefit 3: Hedge Against Inflation
One of the significant benefits of land banking for finance clients is its ability to act as a hedge against inflation. Unlike other assets that can be negatively impacted by rising inflation, land tends to retain and potentially increase its value.
As the demand for land rises with inflation, its limited supply and tangible nature make it a valuable asset that helps preserve the purchasing power of investors. Additionally, land can generate income through various means, such as leasing or development, which can further protect against inflation. By incorporating land banking into their investment strategy, finance clients can mitigate the effects of inflation and safeguard the value of their investments over the long term.
Benefit 4: Potential for Development Opportunities
By acquiring undeveloped land, investors position themselves to benefit from future development possibilities. As surrounding areas evolve and demand for land increases, the value of the land can appreciate significantly.
Strategic location, market demand, and favourable zoning regulations can contribute to unlocking the full development potential of the land. This presents finance clients with the opportunity to capitalise on the value creation that comes with development projects, maximising their returns on investment. Incorporating land banking into their portfolio allows finance clients to tap into the potential for future development opportunities and the associated value growth.
Benefit 5: Lower Holding Costs
Compared to developed properties, undeveloped land typically requires minimal maintenance and ongoing expenses. There are no structures or buildings to maintain, no renovation or repair costs, and no property management fees.
This translates to reduced financial burden and overhead for investors. By minimising holding costs, finance clients can optimise their investment returns and allocate their resources more efficiently. Land banking offers an attractive option for those seeking an investment with lower ongoing expenses and a simpler maintenance process, ultimately enhancing the overall profitability of the investment.
Benefit 6: Tax Advantages
Depending on the jurisdiction and specific circumstances, land banking investments may offer various tax benefits. For example, in some regions, investors can benefit from favourable tax treatment, such as capital gains tax exemptions or deferrals, when they hold onto land for a specified period.
Additionally, certain expenses related to land holding, such as property taxes and maintenance costs, may be tax-deductible. These tax advantages can significantly impact the overall profitability of land banking investments and provide finance clients with an opportunity to optimise their tax position while growing their wealth through land appreciation. It is essential to consult with tax professionals and understand the specific tax regulations and incentives applicable to land investments in the relevant jurisdiction.
Benefit 7: Preservation of Capital
Investing in land provides a stable and secure asset that helps protect the initial capital investment. Unlike more volatile investments, land values have demonstrated a historical tendency for long-term stability and appreciation.
Even during periods of economic downturn, land values tend to hold relatively steady, minimising the risk of capital erosion. By allocating a portion of their portfolio to land banking, finance clients can safeguard their capital and reduce the overall investment risk. This preservation of capital ensures a solid foundation for their financial portfolio and enhances their long-term financial security.
Benefit 8: Limited Maintenance and Management
Unlike developed properties that often require ongoing upkeep, such as repairs, renovations, and tenant management, undeveloped land has minimal maintenance needs. There are no buildings or structures to maintain, no rental vacancies to fill, and no day-to-day management tasks. This translates to lower costs, reduced time commitment, and less hassle for investors. By opting for land banking, finance clients can enjoy the benefits of investing in a tangible asset with minimal maintenance and management requirements.
Benefit 9: Flexibility and Control
Flexibility and control are key benefits of land banking for finance clients. Unlike other investment options that may be subject to external factors or market forces, land banking provides investors with a greater degree of control over their investments.
Clients have the flexibility to determine when and how to develop or sell the land based on market conditions and their own financial goals. This level of control allows investors to adapt their strategies and make informed decisions to optimise their returns. With land banking, finance clients can exercise their autonomy and customise their investment approach according to their preferences and circumstances.
Benefit 10: Legacy and Wealth Transfer
Lastly, land banking offers finance clients the benefit of creating a lasting legacy and facilitating wealth transfer. Land, as a tangible asset, can be passed down through generations, allowing investors to leave a valuable inheritance for their loved ones.
By strategically acquiring and holding land, finance clients can establish a long-term legacy that can provide financial stability and opportunities for future generations. The potential appreciation in land value over time enhances the wealth transfer aspect, enabling the preservation and growth of family wealth. Land banking presents a unique opportunity for finance clients to build a solid foundation for their legacy and ensure the transfer of wealth to their heirs.
Explore The Benefits of Land Banking Today
From its potential to act as a hedge against inflation and preserve capital, to the flexibility and control it provides, land banking stands out as a valuable investment strategy.
With lower holding costs, tax advantages, limited maintenance, and the potential for development opportunities, it offers a compelling proposition for investors. To further explore financial services that align with your specific goals, consider exploring options like mezzanine finance or bridging finance. So, don’t miss out on the numerous advantages that land banking can bring to your financial journey.
Take the first step and start exploring the benefits of land banking today.