Over the past decade, Ghana’s economy has maintained an impressive growth rate of 7.0%. The economy has shown signs of recovery post-COVID,sparking a surge of interest in investing in the country.Investors have two popular options to consider, which are government securities and real estate investments. Both options have their advantages, but real estate investment has become the preferred choice among many investors.
Government securities, also known as “treasuries,” are issued by the government to finance its operations. They come in different forms, including Treasury bills (T-bills), Treasury notes (T-notes), and Treasury bonds (T-bonds). These investments are generally considered to be safe and low-risk, as they are backed by the full faith and credit of the government.
Real estate investments involve purchasing and managing physical property, such as homes, commercial buildings, or land. This type of investment can provide both rental income and capital appreciation over time. Real estate is generally considered a long-term investment.
Now we know the clear distinction between the two, we will examine the benefits of real estate investment and why it is the preferred option for many investors.
Returns on Investment
One of the significant advantages of investing in real estate is the potential for high returns. Real estate investments can provide a steady stream of passive income and higher returns than government securities. For instance, if you purchase a rental property, you can earn rental income each month from your tenants. Additionally, real estate investments can appreciate over time, resulting in significant gains if you sell the property at a higher price than you paid for it.
The global real estate market has seen high returns, and investing in real estate provides diversification opportunities. According to data from the Global Real Estate Markets Annual Review 2022 by Knight Frank, global residential property prices increased by 6.5% on average in 2021, with some markets experiencing even higher growth. In contrast, the average yield on 10-year government bonds is currently around 1.5% globally, highlighting the potential for higher returns from real estate investments.
Government securities, such as treasuries, provide a guaranteed rate of return for investors. While this may be considered low-risk, these investments often have low returns, and in some cases, the returns may not keep up with inflation, resulting in negative real returns in most global emerging markets.
Inflation Protection
Another significant advantage of investing in real estate is that it provides a hedge against inflation. When inflation rises, the value of the real estate increases with it. As the cost of living increases, so does the value of the real estate. Rental income also tends to increase, providing investors with an additional layer of protection against inflation. Moreover, real estate investments tend to retain their value even during inflationary periods, making them a reliable long-term investment option.
In contrast, government securities such as bonds may not keep pace with rising inflation due to fixed interest rates and vulnerability to interest rate risk. When inflation increases, the value of fixed-income securities like government bonds decreases. This erosion in value can reduce the overall value of the investment and the interest income on government securities over time.
Control
Real estate is a tangible asset that provides a sense of security. Investors have physical ownership of the property, which provides them with a sense of control, crucial in uncertain times. With real estate investment, investors can choose the specific properties they want to invest in, and the amount they invest, and have control over how the property is managed.
In contrast, investors who hold government securities do not have any direct control over the underlying government policies or decisions that affect the value of those securities. If a government announces a new policy that impacts the economy or the financial markets, investors holding government securities may be affected by the resulting changes in interest rates or inflation, but they do not have any direct control over the policy itself. This lack of control can limit investors’ control over government securities.
Additional Income
Real estate investment provides opportunities for additional income streams through rental income. With government securities, investors receive a fixed interest income, while with real estate investment, investors can generate rental income on top of any capital appreciation of the property. Furthermore, real estate investments have the potential for capital appreciation, meaning that the value of the property may increase over time, resulting in a profitable sale.
P.S While government securities provide a safe investment option, real estate investment in Ghana offers investors with high returns, tangible ownership, and a hedge against inflation.