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Want property returns? A 6-point checklist

August 03, 2017 11:22 IST

Such investments come with their own share of risks and buyers may need to hold on for at least 5 to 10 years, says Priya Nair.

Buying a plot of land is a challenging task.

Arriving at the right valuation is tough, as many parameters are involved.

Title and ownership are often not clear.

After the purchase, there is always the fear of encroachment.

Getting a loan to buy land is difficult and does not offer tax benefits.

Nonetheless, today people are buying land for investment; to construct a second house, and sometimes, even to carry out organic farming.

Many builders or developers who have land parcels are now selling these as plots, instead of constructing buildings, after implementation of the Real Estate (Regulation and Development) Act (RERA).

"Now, you need to have all permissions in place and also guarantee delivery of the property on time. If developers are facing financial problems and are not sure they will be able to deliver on time, they might consider selling the land," says Sidharth Goel, senior director, research services, Cushman & Wakefield.

"Even if the project is being developed through a joint venture," Goel adds, "the land owner is also held liable in case of non-compliance."

Post RERA, however, land is likely to turn into a more attractive asset.

"The seller must have clear and verified documentation before s/he puts up a piece of land for sale. It must prove her/his ownership and that the title is free from legal encumbrances. Also, misleading advertisement related to the land and its qualities, legal status or appreciation potential will now be punishable", says Ramesh Nair, chief executive officer and country head, JLL India.

1. Check land type

"Usually, this is the local tehsil since the land is likely to be on a city's outskirts. This involves time and money," points out Ravi Ahuja, executive director, office services and investment sales, Colliers International.

2. Check land usage

Merely converting the land into NA does not give you blanket permission to carry out any construction.

"Whether you can construct a purely residential or residential plus commercial structure (shops on the ground floor and apartments above) will depend on which zone the land falls under," says Ahuja.

Residential land is classified into zones like R1, R2, etc.

If demarcated as forestry land, you might not be allowed to convert it for any other use.

You also need to ascertain how much Floor Space Index (FSI) is permitted, which determines how much you are allowed to construct on a given plot.

3. Verify ownership

"In the absence of land records, it becomes difficult to verify the title deed. The buyer will not know about encroachments, prior legal cases or who the last owner was. These risks may be known only once the payment is made and someone sends a legal notice claiming ownership of the land," says Ahuja.

4. Advantages of plotted land

One safe option is to buy plotted land from a developer. Here, the developer would have already done the due diligence on ownership and title.

S/he also provides infrastructure like water, roads, electricity, sewerage lines, etc., till your doorstep.

But, such plots are usually available at a premium to standalone ones.

"When you buy a plotted development, you get ready title in your name. You also don't need to worry about encroachments within such a development," says Ahuja.

5. Getting a loan is not easy

If one is taking a loan, it is usually a composite one meant for purchasing land and to construct a house for self-occupation.

"There are income tax benefits on such a loan, as long as the house construction is completed within three years from the end of the financial year in which the loan was taken," says Nair.

A loan for only buying land is difficult to get and doesn't offer income tax benefits.

"Banks usually charge 0.5 to 2 percentage points higher interest rate for land loans over the home loan rate," adds Nair.

6. Long holding period required

An investment in land can offer multi-fold returns, provided you are ready to lock in money for 5 to 10 years.

How fast the price appreciates depends on factors like size, whether it is located on flat ground or on a slope, accessibility to infrastructure and transport, etc.

If it is for agriculture, then returns depend on whether the soil is fertile and there is access to water.

"Most people buy land because there is some development coming up in the area, like a highway or an airport, and hope that the price will appreciate. Given the pace at which projects are developed in our country, this could take years," says Goel.

You need to have holding capacity and in the meantime you must be able to protect your land from encroachment or from someone trying to take over the title.

Photograph: PTI Photo

Priya Nair