Syndicate content

How do companies acquire land when looking abroad for their investments?

Identifying a suitable location for investment is among one of the first decisions to be made once a company has committed to entering a local market for an FDI project. Many assume that foreign companies would automatically seek to acquire land in the most secure and legally available option – typically either purchasing freehold from a private seller or in a long term lease from the government. Doing so would allow the investing company to earn income over time on the asset (such as foreign investors have done investing in bungalows in Singapore), maintain complete control over land use and possibly use the property for collateral. 

However, this assumption is at times contradicted by the facts. Many foreign companies investing abroad may actually prefer to acquire land in the form of lease contracts. A recent example of this is the announcement by George Soros-backed Adecoagro to acquire land for its Brazilian agribusiness/sugar investment by entering into a long term lease contract. This could be because lease contracts often are easier to obtain and provide better protection against basic investor risks. How?

First, lease contracts allow foreign companies to protect against expropriation risk – losing relatively little of their investment in the land if the government decides to expropriate the land for its own use (as was the case recently in Venezuela). Second, lease contracts protect against currency devaluation or economic crisis risks, allowing the company to avoid exposure to long term obligations – required by purchasing land (many wealthy foreign investors have recently learned this lesson in Dubai). Finally, leasing may also make life easier on foreign companies entering the local market. In some cases, government approval may not be required for industrial investments, while such approval is almost always required for land purchases (see example of China Shenhua Energy Co. first having to get an approval from New South Wales state before it could invest in Australia).

Despite the benefits of leasing, the choice of how to acquire land is generally made on a case-by-case basis. I believe that there are three main points of decision when a foreign-owned company thinks about what type of acquisition to seek for its FDI project:

#1: Sector of investment. The choice of whether to lease or own land for an investment project is often highly dependent on the sector in which the company is investing. Sectors which are capital intensive and require large investments in physical infrastructure to begin operations (machinery, electronics and pharmaceutical manufacturing) typically prefer to purchase land in freehold for their investment. On the other hand, investors entering garment, retail, hotel, agribusiness, and service sectors typically prefer to lease land so that they can quickly exit if/when investments turns sour.

The World Bank Group Enterprise Database confirms these observations: more than 60 percent of foreign majority-owned companies around the world surveyed held land in lease contracts for garments, retail and hotel industry investments, while less than 30 percent leased the land for investments in metals, electronics and chemicals sectors – choosing instead to purchase the land for the investment project. 

Share of Majority Foreign-Owned Companies which lease land by sector 
#2: Size of investment. A second important consideration for companies acquiring land abroad as part of their investment project is the size of their investment. As one would expect, the larger the size of the investment, the more security investors will seek in their acquisition of land. Again, the World Bank Group Enterprise Database points to this conclusion from majority foreign held firms operating abroad: more than half of those firms interviewed with 50 employees or less held land in lease contract, while fewer than 35 percent of firms with more than 250 employees held land in lease contract, opting instead to own the land where possible.

Share of Majority Foreign-Owned Firms which lease land by firm size 
#3: Local legal environment. An additional critical step for companies investing from abroad is to understand what options are legally possible for acquiring land. While most countries allow investors the choice of any type of acquisition they might desire, purchasing in freehold or leasing from either the government or private holder, others do not. For example, many countries in East Asia, such as Indonesia and Thailand, do not allow foreigners to own land. Thus, most foreign-owned companies tend to lease from private citizens. On the other hand, in numerous parts of Sub-Saharan Africa, in countries like Tanzania, Liberia and Zambia, all land is held by the government on behalf of the people and thus the only option is for companies to lease from the government in the form of a long term lease.  

The bottom line is that there are a lot of considerations for foreign-owned companies when trying to access land for their FDI projects. If this has caught your fancy the same way it has for me, I would be curious to receive your comments. 


Submitted by Humberto Laudares on
Great piece Kusi! Few comments about the Adecoagro specifically case: 1) The Brazilian partner company, Usina Monte Alegre, also has long experience in leasing land to grow sugar cane. It makes sense financially. 2) Soros in joining the national firm decided to do not buy any piece of land. Why? This is not only about the risks, it is mainly about the technology transfer.

Sometimes partnering with a local operator helps. and the reasons for the same would be: [1] no harmonization at the global level: laws and legislation are different between the host and the 'satellite' nations.. [2] but of course, the process and bureaucracy could be not just frustrating: but also time consuming for the foreign organization to do-it-all-alone. [3] the cost of doing it all alone - may actually end up being higher than if sourced regards olga lednichenko

Leasing is absolutely the way to go for "moving shop" in foreign countries. Way too many hassles to deal with acquiring land. Once successful, with a strong backing in that country, it would probably be advantageous to purchase land. Even then, leasing may still be the more logical approach, and this is someone who preaches investing in land. :-) Mark Daniels The Dirt Professor

Submitted by Rahul Dhawan on
Dear Kusi, I somewhat agree with the contents of your article. But the countries like India have taken the initiative to eradicate the fears of investors and smooth the investment process by allowing the formation of Special Economic Zones. These zones vary in size in accordance with the actual captive usage or investment capacity. Also these zones are actually deemed as foreign territory or a duty free enclave within the boundaries of the country. Major benefits of these SEZs are that they are available in customised land size denomination for any industry and they have single window for all clearances and approvals. They can be set up as independent unit on minimum 10 HA or be awesome 1000 HA. In addition there is total TAX holiday & other fiscal incentives like 100% exemptions from import duties,levies etc. The best thing is that they are available on both lease-contract as well as purchase basis. Plus government initiates to provide the entire infrastructure on a rapid note. They are currently economic growth boosters for every industry. If you have any such investors willing to invest in India then please contact me at

Add new comment