Not a simple decision when it comes to choosing which investment is worth your money. First time investors and seasoned and sophisticated investors alike, have similar challenges when it comes to the choice of investment. People have various methods of comparing one investment to another. Even professional investment analysts have varying methods. Transportation and real estate business are two of hot investments in Ghana and here are some simple guidelines for comparing them
Commercial transportation in Ghana (mainly taxi and trotro) is one that many fail to see its profit potential. It is very profitable if managed well –like many other businesses. Taxis and trotro (mini-van commercial transport) repay their invested capital usually in less than 2years. Real estate on the other hand takes about 6years to recoup investment if rented. Real estate sold outright however takes an average of 3years (construction and sale period included) to recoup investment.
Real estate carries lower risk than transportation business. However, to enjoy the comparatively lower risk, investors must do proper due diligence before putting in their first dollar or cedi, as the industry in Ghana is characterized by litigation, and regulatory requirements that must be duly followed. Location is very important. Consult an industry expert when it comes to which locations to invest in properties for maximum returns in short periods. Some real estate developers in Ghana have erected properties in areas where their millions are locked up in unoccupied properties, not even getting prospects to come and inspect. Transportation on the other hand carries high risk. Bad roads, car snatching, careless driving, flooding, are some of the risks you’re exposed to in the industry. Your vehicle could last only a month on the road, if you’re unlucky. However, insurance products abound in the country to help investors mitigate most of these risks. Both are not liquid investments; however vehicles provide better liquidity in Ghana than buildings.
Real estate returns an average of 200% on sold properties. Amazing and tempting, but its true especially when your properties are located in prime areas. For rental properties, about 20% is expected in a year but again, the location could move the figure higher or lower. Transportation business in Ghana is quite simple and returns are easy to compute. Taxis and Trotro take about 18months to return 100% of the invested amount. The revenues are usually predictable and stable over a period, only fluctuating with changes in fuel price.
Competition and Threat of Entrants
Commercial transport business in Ghana isn’t a difficult-to-enter industry. Once you buy a vehicle and follow due process (quite an easy process that can be completed in 2days), you are in business. For this reason, there are many investors in the industry –individuals and corporate entities. Services are quite homogenous, except for Uber which recently begun operations in Accra with a superior technology and pricing. Despite the thousands of vehicles on the roads of major cities, competition doesn’t seem so fierce. Ironically, real estate industry in Ghana has comparatively fewer players and higher entry barrier, yet competition among these few players is high –fierce and challenging. You always need to do more to make a sale, especially if you’re not strategically located.
An important feature to look at in these two businesses is how much your investment is worth at the end of an anticipated period of time. The value of vehicles in Ghana and almost every other place I know, generally decrease over time. Wear and tear alone is sufficient reason for the value of your commercial vehicle to be halved after 2years on the roads of Ghana. Commercial vehicles usually are in good condition for 4 years, after which the cost of repairs and maintenance could equal or even exceed its revenue. At this stage you could sell your vehicle for about half of the cost of acquisition. However, well-kept cars could fetch the same price they were acquired for. Real estate on the other hand keeps rising in value. Each year the cost of buildings in Ghana goes up. Most properties are priced in US dollars and the depreciation of the cedi in itself is an implicit rise in the value of dollar-priced properties. Real estate properties have rising residual values. No matter how old the property is, it’s sure to fetch you more than the cost of putting it up.
These guidelines are not exhaustive but they should guide you to make a preliminary assessment of where to put your money.