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Home > Business > Special


Buying land is easy & can make you rich

Harsh Roongta, Outlook Money | July 28, 2006

Almost all of us know of some ordinary middle-class family that has made a fortune by selling land bought decades ago. Over the long term (20 years or so), land values have been known to appreciate 100 times.

Reason enough to invest in land, right? Unfortunately, too few investors have land in their portfolios. Most reasons given for shunning real estate are based on myths.

Myth 1. Investment in land is meant only for millionaires

Investments of Rs 5-10 lakh (Rs 500,000-1 million) in well-located plots can yield rich dividends and, loans are easily available. Just remember that banks generally finance only plots bought from statutory bodies or approved developers. Tenure is usually 7-10 years, and interest rates are higher by about 1.50-2 per cent. But taking a plot loan reduces the amount of your own upfront investment, so don't let the restrictions put you off.

Myth 2. Time-consuming and costly

True, given the bureaucratic hassles. Ideally, buy non-agricultural plots from authorised sources. Check if the project is pre-approved by leading nationalised or private sector banks. For example, see if it has got loans from at least a couple of banks to get an idea.

Myth 3. No tax-breaks for plot loans

This is more fact than myth, as the interest on a plot loan is deductible for tax purposes only if the land is used to generate income. The principal repaid on such a loan is not eligible for tax benefits. However, the interest payable can be capitalised and added to the cost of acquisition. So, while the loan repayment may not give any immediate tax benefit, it helps in reducing the tax on capital gains when you sell.

There are also some real problems that have kept land out of many portfolios. Let's take a look.

Cash payment: This can be a big issue for most people who don't have unaccounted income. It can also lead to legal and tax issues. The best way to avoid this is to buy from statutory bodies or reputed developers.

Poor liquidity: Traditionally, non-agricultural land cannot be sold easily, even if you are willing to sell for less than market rate. However, most banks will provide you business loans or overdraft facilities with the land as collateral security.

Encroachments: Buy in clearly demarcated non-agricultural plot schemes. Also make sure that zoning changes are likely to affect many people in the scheme (safety in numbers). This ensures that you come to know of any changes and get redressal due to group efforts.

High transaction costs: Stamp duty rates can be as high as 15 per cent. Effective rates can be higher as normative values apply rather than the recorded cost. But if you are a long-term investor, the high transaction costs are spread over many years and the return is only marginally affected.

Despite all these problems, investing in land is a good bet. The potential returns are too good to be ignored. The risks are limited to poor returns rather than loss of capital.

But, since it may not be possible to devote much time on such investments, try these:

  • Ask your financial planner to help you allocate a  part of your portfolio for investment in buying land.
  • Buy in remote outskirts of large cities, like Panvel near Navi Mumbai, or in the suburbs of smaller cities.
  • Pay the premium for well-located plots, as the increase in returns is disproportionate to the current premium paid.
  • If you get friends and family to invest as well, you could get better terms from the developer.
  • Most important, if your investment horizon is under 10 years, don't go near real estate.

And so, happy investing.

The author is director of Apnaloan.com and can be reached at harsh@apnaloan.com 


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Number of User Comments: 2




Sub: Good Investment....

I think if wisely Invested one can get tremendous returns from investing in Land...... If one wants to invest for long term then he has ...


Posted by Parthesh Shanbhag





Sub: Land buying

How the hell this article can be a TOP story???


Posted by Pawan




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