Is it better to invest in real estate or in shares?

Posted by Felix Okoli on Friday June 21, 2013 at 12:38:16:

When people save some money in the bank and it reaches to an appreciable level, the person no longer feels satisfied just saving money in the bank when it would have been put to better use. Many working Nigerians find themselves in that situation at one time or the other after having had an averagely successful career. The Big question remains, "What is the best form of passive investment?".

For most people, there is no better investment than in real estate. Everyone aspires to at least have his own home and if possible have multiple homes where they can at least collect rent for the rest of their lives. So, for people who have made money and are probably still making money, there is always this desire to invest in something that would give them a kickback for the rest of their lives without much stress. For them, real estate remains a good investment at least, in a country where the govt's National Housing commission cannot provide enough homes for 100 million Nigerians. So when one considers the number of homeless people in Nigeria, real estate will probably remain profitable for the next 50 years.

Another form of investment which Nigerians have also become used to is that of buying shares for long term. Nigerians have been participating more actively in the capital market since the late 90s. Some people who have money feel that rather than put it in a bank where you'd probably get around 3% on savings, it is much wiser to put into companies that are profitable and would probably still remain relevant for the long term. When you consider their reasoning and the fact that they get paid dividends and that stock prices tend to grow in Nigeria, a country that has the fastest growing economy in Africa, you might also agree that buying shares for long term is also a good passive investment.

So which one is really better? Real estate investment or capital market investment?

Well, with the way I see it, people who build homes like a duplex or bungalow can rent it and get back their investment within 10 years but the capital invested keeps growing until at least the next 80 years. It also takes at least around N3m to build a simple house in Nigeria.

On the other hand, someone who buys shares also gets dividends and capital appreciation but both of these incomes are not guaranteed. Nowadays, Nigerians are scared of buying shares since they are not the ones running the company and due to the previous capital market price shakedown. However with just N10,000, one can start buying shares so it requires less capital than real estate.

If you ask me, I'd say, real estate investment is still more reliable and profitable in Nigeria than buying shares. The only setback for most people is the initial capital involved.