Land Investment : What You Need To Know
Land Investment : The complexities of investing in land are numerous. Here is a forecast for anyone wishing to purchase land.
In India, buying land as an investment has long been common. Despite the advent of different financial instruments like mutual funds and stock shares, its popularity has not decreased. However, before making a land investment, you should be inform of all the benefits and drawbacks.
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Land investment: Scarce resources
With the exception of a few reclamation situations, there is a finite amount of land available, and adding more is virtually difficult. The demand for land has only risen as a result of its constrained supply and the growing necessity. The price of land hasn’t fluctuated dramatically like other assets like gold and equities, thanks to this ongoing need, nevertheless.
Land investment: A pricey and risky investment
Purchasing land requires a large financial commitment. Less wealthy people cannot afford to invest in real estate. They should choose financial assets instead, such as shares, mutual fund units, recurring deposits, or even gold. Land investments are also highly illiquid, so you cannot sell them off when you want to cash them in. The goal of making the investment in the first place may be defeated if it takes years for the sale to actually occur in some circumstances.
Purchasing land involves a risk of invasion and acquisition.
All of us have heard tales of land encroachment driving down investments. In certain circumstances, your legal ownership of the land is threatened, leading to litigation and needless legal fees. Sometimes, the additional costs offset the increase in the value of your land.
Additionally, there is a chance that the government will compel the acquisition of the land. It’s possible that the recompense obtained isn’t always adequate. The purchase of land in the case of Noida Extension is a perfect illustration of such an occurrence.
Investment in real estate: Lack of funding
Loan applicants are only permitted to borrow up to 80% of the value of the property in order to purchase or build a home. You can obtain a composite loan that covers the cost of the plot and the cost of building if you want to build a house on a piece of land. However, unless the property is obtained through a reputable and recognise government development authority like DDA or MHADA, no bank would typically provide money for the acquisition of a plot of land.
Land investment: Tax advantages
In the case of a mortgage, Sections 24 and 80C of the Income Tax Act allow you to deduct both interest payments and principal repayments from your taxes. For the interest paid on money borrowed for real estate investments, there is no such provision.
Investing in land: Pros & cons
| Pros | Cons |
| Limited supply, never-ending demand makes land more valuable. | It is a big-ticket investment and difficult to encash quickly. |
| Land appreciates more quickly than any other type of property. | It is a risk asset since it could be easily encroached upon or compulsorily acquire by the government. |
| No gap between purchase and possession. | Banks provide loans for buying a plot only if you plan to construct a property over it. |
| No maintenance cost. | No tax benefits on buying a plot. |
Things to consider when buying land
- Due to the significant financial outlay required for land investments, you should be certain of your investment’s goal. Make sure the land has all the required licences if you are purchasing it for residential construction. Verify the land conversion requirements if you want to purchase it for commercial development. You would need to look for licences and other paperwork if you wanted to buy it for raising cattle, growing vegetables, planting a vineyard, or just for fun.
- In some circumstances, the owner’s ability to utilise the land may be limited by land-use limitations. Check the land easements since they can provide a third party access to a piece of the property. For instance, the transfer of mining rights may provide a third party who is unconnected permission to extract and sell minerals for profit.
- Before buying the land, investors should take into account the accessibility of basic services like power and water supply. In addition, the buyer should examine the annual property tax bill for the property and evaluate its distance from the nearby town.
- Investors should be aware that purchasing undevelope land is a hazardous investment because there will be no income from it and there may not be a significant financial gain when the property is sold.
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