Investment in the land has always been a popular option in India. It is one of the most popular and traditional options because of its high rate of return. Plots are one of the most lucrative investment options, but at the same time are also one of the riskiest real estate investment options. Most lucrative because the land is where the real value is, especially if the plot is located in an investment hotspot or in a developing area. To give you a clear idea, we have compiled a checklist for you to tick off before you make an investment decision.
Below are some factors to consider while investing in Plots
Investing in a plot is much cheaper than buying a home or a commercial space for investment purposes. If one compares from a return on investment perspective, the returns on a plot for the amount invested are way higher than the returns for a residential or commercial property. When considering the re-sale value of a house, most people prefer buying a plot and constructing their own house as opposed to buying an already built house. However, with the increasing cost of construction and escalating land value, there are buyers for building independent houses as well. In the case of a house, the value is directly proportional to the facilities available within the house and accessibility around it.
Experts say that plots appreciate faster than apartments. This is mainly because plots are less in supply in the market. Age does not affect your investment in land, as it does in the case of apartments. Also, during stable market conditions, the worth of a plot rises with time. In terms of ROI, plots are providing the highest returns when compared to any other asset type in Real Estate. If the plot is in an investment hotspot or an upcoming area, the returns are even greater. Returns in plots start from 12% with no upper limit.
When compared to residential and commercial properties, the maintenance for a plot is much lesser. When outgoings are lesser, the returns tend to be even higher.
It’s important to make sure that the plot has a clear title. One should make sure it’s an NA plot in case it’s being purchased for development purposes. It’s very important to do a proper due diligence of the plot, and one must make sure that the plot comes under a reputed government development authority.
Standard of Living
Owning a plot of land is a symbol of luxury. A piece of land has no spatial constraints and any construction on it can be built to accommodate many people, depending on the size of the family and its requirements. Hence, having an independent house, can also be said to improve one’s standard of living
There’s always the risk of the land being taken over by the government by way of compulsory acquisition. The compensation received may not be satisfactory. One such example is the acquisition of land in the Noida Extension case.
Low property tax
Tax treatment for plots and flat is different. When you take a home loan to buy a flat or a builder's floor, the monthly loan repayment allows you to save on tax. In the case of plots, tax deduction on interest is allowed only from the time the construction is completed. Property tax is something that every person has to pay. But the amount of property tax paid for a plot is much less compared to residential or commercial property. "You can also avail of a deduction of up to Rs 1.5 lakh in a financial year for the interest you have paid on the loan. Also, Rs 1 lakh deduction can be claimed for repayment of the principal. In the case of plots, tax deduction on interest is allowed only from the time the construction is completed," Kunj Kaushal, a chartered accountant based in Delhi, says.
Coming to loan on plots. Banks usually don’t provide loans on plots until and unless the land has a clear title and if it falls under the jurisdiction of a reputed government development authority. However, in case of a home loan one can claim tax benefits with respect to interest payment. But no such provision exists for interest paid on money borrowed for investing in land.
Plots are susceptible to encroachments. If one is buying agricultural land, it is important to check the ownership details of the last 30 years. If you buy land make sure you have the proper paperwork to prove that the land belongs to you. Having no proper paperwork can result in you losing that property forever. To avoid such problems, get your land properly fenced. Fencing results in a low risk of getting your land lost.
The land will always be in demand. The value of land appreciates typically with time. Reselling a plot might be complicated. As the value of the plot increases, finding a buyer willing to pay a hiked price is a challenge. At times, it may take a year to find the right buyer.
All in all, buying a plot comes with its own set of pros and cons. On paper, it may look very lucrative but in reality, it may not be. Just like one does due diligence while investing in residential or commercial properties, one must be more careful while purchasing plots. With the scarcity of land, the prices are going to go higher and higher, so now is the perfect time to purchase plots.