Buy a land for Investment sounds like a very logical decision. The land is a scarce resource, no one can generate parcels of Land. For Vertical Expansion, builders can increase the number of floors in an apartment but for Horizontal Expansion, Land is required.
In India, people purchase lands to meet long term financial commitments. One of my acquaintances bought 3 plots of 40X60 each. It’s for his son’s higher Education & his Marriage. It sounds very exciting but the decision to buy land comes with its own merits and demerits. Here you can study 10 points which every buyer should consider before buying land.
At North India, there is famous saying that there are only 3 core reasons for any dispute in this world i.e. Zar (Money), Zoru (Woman) or Zameen (Land). It’s a matter of fact that most legal cases in India are related to Land Disputes. Before you purchase a land, it is very very critical to ascertain that Land is free from any legal dispute. Some of the common legal disputes related to land are Land is Fledged or Pledged multiple times, Marking of Land Boundary, Agricultural Land, Adivasi land, Land notified for Govt Special purpose, Claim of legal Heirs etc.
It is absolutely necessary to hire a competent local lawyer who knows all the local laws and helps to buy land without legal trouble.
Buy Land for Faster Appreciation
It’s a known fact that the value of Land appreciates faster compared to a flat or a house. This is the most compelling factor to buy land. The depreciation due to ageing factor in flats/houses is not applicable in land. At the same time some of the factors which can go wrong are Location of Plot, Shape of Plot, Direction of Plot, Neighborhood, Accessibility etc. If all these factors are not considered before you buy land, your biggest asset can easily become your biggest liability.
The prime difference between flat and land is that in case something goes wrong legally in an apartment, you have other owners along with you to fight jointly.It is hard to understand local laws related to land transfer. When land purchasing, please ensure that documentation related to land transfer is complete to avoid future hassle. All the legal matters of the land owner should be party to transfer of title deed. Following documents are must for land transfer.
- 7/12 document
- 6/12 document
- 8/A booklet
- Encumbrance Certificate
- Release Certificate
- Survey Sketch
- DC Certificate
Surveillance of Land
Most critical factor, Before you buy land, is to kindly ensure that you have bandwidth or resources for more surveillance. Land is more prone to trespassing and illegal occupation as it is quite easy to grab land compared to flat or house. Land mafia is very active especially in upcoming areas. A very famous movie “Khosla Ka Ghosla” was all about Land Grabbing. In real life it is not that easy to get the land back from clutches of the Land Mafia. If your job is transferable or you are not staying in the city than its advisable to avoid land purchase. Land Mafia only target the plots where the owner is away or there is inadequate surveillance. Legal cases related to land can go on for decades.
Land is Non Productive Asset
Though land will appreciate at a faster rate but it does not generate any income. A flat or House can generate regular rental income but Land is a dead asset during holding period. If a land has potential to appreciate @ 20% & flat / house can appreciate @ 15% with annual yield of 4% from rent than rather to buy land it’s better to go with flat / house.
Though land is Non Productive Asset but you need to pay Wealth Tax if you have more than one House / Flat / Plot. If you have 1 house and 1 urban plot / land (more than 500 meters) then the house can be shown as self-occupied. For the urban plot / land, you need to pay wealth tax equal to 1% of net worth if the net worth (after adjusting debts) exceeds 30 lacs.
Income Tax Benefits
There are no tax benefits available on Plot Loan i.e. Land Loan to buy Land without any plan to construct the house. Composite loans to buy land and build a house for self-occupation enjoy income tax benefits. A composite loan, construction should be completed within 3 years from the end of the financial year of availing the loan.
The only exception to the above rule is if the plot is rented out. In here, interest paid on Loan can be availed as deduction whereas No deduction is available on the principal component.
Rate of Interest
Land Loan interest rate is normally higher compared to Home Loan. Normally for Plot Loan banks charge 0.25% to 1% over and above Home Loan interest rate.
Loan to value Ratio
The LTV for Land / Plot Loan is normally 70% against 80% for House / Flat. You need more funds from your end to buy land. If the allotment is from Govt development authority then the LTV can go upto 80%.