Why FGN Bonds Outshine the Nigerian Real Estate Market

This article delves into why FGN bonds have proven to be a better investment choice over the Nigerian real estate market, offering higher safety, returns, and liquidity.

Investing is all about striking the perfect balance between profit, safety, and liquidity.

While several options are vying for your attention, there’s one that often stands out in the Nigerian financial landscape – FGN Bonds.

Understanding the Power of FGN Bonds

FGN bonds are deemed one of the safest forms of investments available.

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Their safety is derived from the fact that they’re backed by the Nigerian government, a considerably more secure bet than individual assets that bear a higher risk of defaulting.

While there’s a trade-off between safety and yield, with safer investments typically offering lower returns, FGN bonds surprisingly contest this rule.

The Debt Management Office (DMO) has proposed a 2-year FGN Savings Bond due 14 June 2025 with a compelling annual interest rate of 10.301%.

Another offering is a three-year savings bond due June 14, 2026, with an annual interest rate of 11.301%. In the turbulent world of investments, such returns can be hard to come by, especially in real estate.

FGN Bonds: A Peek into Their Benefits

FGN Bonds offer the advantage of regular income through semi-annual interest payments.

This makes them an attractive choice for investors desiring a consistent income stream while also preserving their initial capital.

Another winning feature of FGN bonds is their ease of resale. Investors can readily sell their bonds to other investors prior to the maturity date, ensuring liquidity.

What’s more, they are tax-exempt, a feature that extends to infrastructure bonds that usually have maturities exceeding five years.

Navigating the Challenges of Real Estate Investment in Nigeria

Contrasting FGN bonds, the Nigerian real estate market comes with its unique set of challenges.

For starters, it’s still a budding market with less transparency compared to the fixed income market where transactions are facilitated through investment banks or brokers.

The real estate market in Nigeria remains largely unregulated, making it a breeding ground for fraud.

Unlicensed brokers can mislead investors about property valuations, and substantial communication barriers may impede finding the right property or agent.

Furthermore, several contractors in Nigeria have been caught using substandard materials, leading to disastrous building collapses.

Coupled with poor enforcement of government real estate laws, investors may find themselves losing their legally acquired land to notorious real estate scammers like the Omo Onile, especially in developed regions like Lagos.

Economic Impact and Advantages of FGN Bonds

FGN bonds are not only an investment vehicle but also play a crucial role in the economy.

They function like loans, with the federal government returning the initial amount (principal) to the lender at the end of the term.

These bonds are risk-free, provide tax-exempt income, and can even be used as collateral for loans.

By promoting long-term investment, they offer an alternative source of government funding, fostering self-reliance, and lessening the dependence on external financing.

Real Estate Investment Woes: Illiquidity and Depreciation

Real estate investments come with their fair share of issues – most notably, illiquidity and depreciation.

Real estate sales often take time, hindering immediate conversion into cash. Even when there’s considerable interest in a property, closing the sale might take longer than expected.

Additionally, properties can depreciate over time, meaning a property owned for many years might have to be sold at a much lower price than it was bought.

In the quest for profitable, safe, and liquid investments, FGN bonds have proven their worth over the Nigerian real estate market.

With promising returns, tax benefits, liquidity, and significant contributions to the economy, they present a robust case for investors.

Whether you’re seeking regular income, preserving your capital, or merely ensuring safety, FGN bonds are a compelling choice.

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Frequently Asked Questions

What are FGN Bonds?

FGN bonds are debt securities issued by the Nigerian government for investors, offering regular income and safety for their investment.

How are FGN bonds safer than real estate investments?

Unlike real estate investments, FGN bonds are backed by the government and offer regular income, resale options, and are tax-exempt.

Why is the Nigerian real estate market challenging for investors?

The Nigerian real estate market suffers from a lack of transparency, regulation, and is prone to fraud. Additionally, property values can depreciate over time, and the market is highly illiquid.

Can FGN bonds be used as collateral for loans?

Yes, FGN bonds can be used as collateral for loans, making them a versatile investment choice.

How do FGN bonds contribute to the Nigerian economy?

FGN bonds encourage long-term investment in the economy, offer an alternative source of government funding, promote self-reliance, and reduce reliance on external financing.


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