Investing in construction companies might not make sense to some. Why not? Well, because people are watching trends like crypto, energy, mobile technology, software engineering, and so on. In recent years, the construction industry has had a huge revamp thanks to urbanization.
Urbanization has provoked higher demand for housing in major cities, a need for more roads, and a need for more and more infrastructure. There are multiple reasons to invest in construction companies: profit levels, sales volume, and employee volume; they all show continued growth in construction worldwide.
According to a study provided by the Nigeria National Bureau of Statistics, the construction industry in Nigeria is growing at a pace of 13%. The Nigerian government reportedly invested heavily in construction to persuade investors.
Reasons To Invest In Construction Companies
Construction companies in Lagos are currently focused on housing projects due to the population growth in Nigeria, which is currently at 167 million and is expected to reach 200 million by 2030; this is an indicator that construction companies in Nigeria are viable choices for investment. Below are reasons why you should invest in construction;
The world is at the precipice of full digitization. Construction companies are embracing this new era. The construction industry must spend more on modern construction technology to truly jumpstart and make available the resources that the sector lacks. In general, disruptive and innovative real estate are more suited as investment properties than resale properties.
They are just more energy-efficient, healthier, and require less upkeep. It is evident, then, that performance and digitization go synonymously in the construction industry. With the advent of AI and predictive technology, construction companies are set to become prospects for investment.
2. Bigger Income Potential
This is quite likely the most compelling rationale to invest in construction companies. Commercial construction has a far higher profit potential than most investments. They have a substantially higher range of yearly return on investment. Investment in construction companies is not risk-free; the pros and cons have to be weighed before investing, but they pose more income potential.
Housing developments are constantly available in an emerging and rising market. As an investor, you always want to minimize risks and increase long-term appreciation. With construction technology revamping the construction sector, the income potential exceeds expectations. This is seen in the involvement of private individuals in Nigeria’s construction stocks.
3. Diversity with ETFs and mutual funds
The construction sector is the biggest raw material user, accounting for 50% of global steel production and 3 billion tons of raw materials worldwide. Construction companies in Lagos investing in concrete, steel, and granite are looking more attractive. However, investors may diversify by utilizing exchange-traded funds and mutual funds, which reduce the risk associated with a building or property market collapse.
For instance, the iShares U.S. Residential Construction ETF (ITB) is currently trading at around $38, up from $23.36 five years ago but essentially unchanged over the previous year. Toll Brothers, D.R. Horton (DHI), Lennar Corp. (LEN), NVR (NVR), and Lowe’s Companies (LOW) are among its holdings.
4. Public infrastructure
Public infrastructure remains an area with a lot of growth potential. The rehabilitation of roads, bridges, water, and sewage is still in its early phases. Technological improvements, like those in other sectors, are assisting construction companies in becoming more efficient and lucrative. Public infrastructure remains a major contributor to the growth index of construction companies, with investments coming from the government and transnational organizations.
New construction property, on average, gains value quicker than its resale equivalents. As the population of new projects grows, retail establishments, schools, and other facilities rise to serve the increasing population. This helps to enhance property prices as more inhabitants come into the region, increasing demand and sustaining the community.
Certain nonresidential and commercial construction market sectors, such as network infrastructure, factories, schools, and general commerce, are connected to single-family home expansion, and will also continue to offer excellent growth in 2022.
Construction Investment Opportunities In Nigeria
There is a wide array of investment opportunities in Nigeria, after understanding why you should invest in construction companies, have a look at amazing investment opportunities in Nigeria;
- Residential Housing
The demand for adequate housing remains high in a country the size of over 167 million people and a growing middle class. The Federal Mortgage Bank of Nigeria (FMBN) estimates that the nation has a housing shortage of 17 million units. Although there are a lot of construction companies in Lagos, there is still a shortage of houses in Lagos due to only individual investments going into real estate projects.
This leaves a gap in the housing sector for more investments to come in. With a fast-rising middle class, real estate is a prime option to invest in.
The retail industry is the number one contributor to economic growth in Nigeria. Lagos, which is Nigeria’s commercial center, contributed 41% of Nigeria’s GDP in 2021. Shoprite Holdings, the South African headquartered grocery chain, has announced plans to construct dozens more retail outlets. Other multinational companies, such as Nestle PLC and Unilever PLC, are taking the initiative and planning expansion projects in Nigeria.
- Eco Atlantic City
If you are a construction geek, you might have heard of Eco Atlantic City. A city being constructed from scratch. A city being constructed on land reclaimed from the Atlantic Ocean. The new area is expected to have at least 250,000 residents and a daily commuter movement of 150,000 people when it is finished. The initiative is also intended to aid in the mitigation of coastal erosion in Lagos.
Construction companies in Lagos are greatly involved in this project. A major contractor is the CCCC (China Communications Construction Group). This project is open to private investors, while the Lagos state government remains a strategic partner.
Finally, you may still be wondering if this is a good time to invest in construction. This is directly dependent on mortgage loan rates in your country; while they are low, it is a good moment to invest in new development using financing from banks. When they are in the mid to high range, consider purchasing a used property and profiting from it through methods such as renovation and resale or converting it into a rental estate.
There is also the potential to earn a passive income by purchasing and waiting until the price rises. When you have the whole cost of a property in your possession, a suitable investment period is determined by the state of the economy: it is smart to purchase when the market is falling and sell when it is rising.
There are a wide array of construction companies in Lagos, such as Julius Berger corporation, Hitech Construction Company Ltd, Sujimoto Construction Limited, and so much more, which are excellent investment options in Lagos.