The Return Perspective:

Land itself produces no income and therefore is going to be a negatively geared investment. If the growth on such an investment is large enough, the benefits can clearly outweigh the negative short-term impact on cash flow.

The Advantages:

If bought in the right expansion area, the value of the investments can easily realize capital gains of 5-10 times the initial investment within a relatively short period of time. Small investors could use this strategy when buying residential blocks of land from developers.

The Potential Risks/Difficulties:

Investors must be aware that if the market experiences a downturn, they need to be prepared to sell the land at a loss or continue holding the negative cash flow until the price rises. Purchasing land for growth speculation involves a higher risk than investing in a property that is able to produce an income before exiting the investment.

The gearing ratios on this type of investment are normally quite low, generally between 40-50%. Investors need an ample amount of cash they are willing to put aside and wait a certain time frame for the predicted expansion to happen.