Investing in land can be much more profitable than investing in apartments or floors because the appreciation is much higher.
According to a report by Anarock, the top seven cities of Bengaluru, Chennai, Hyderabad, Pune, Kolkata, Mumbai Metropolitan Region (MMR) and National Capital Region (NCR and NCR) have witnessed a new trend of l supply of land since 2020.
Not only that, there has also been decent appreciation over the past two and a half years. Although land appreciation is high compared to a flat or apartment, investing in land can sometimes be tricky. Here are some things to look out for when investing in land.
Carefully choose the type of terrain
Buyers can choose from different types of plots, such as residential, commercial or agricultural.
According to V. Swaminatham, Executive Chairman, Andromeda Loans and Apnapaisa.com: “That said, not all lenders approve loans for all types of land, as many prefer to offer loans only for residential land. It’s a good idea to speak with the bank branch to confirm the loan for the particular type of land you are considering buying.
Under the Real Estate Regulatory Authority Act 2016, RERA committees have been established across India to promote uniformity and transparency as well as regulate the real estate industry.
That said, RERA will not apply if you buy land from an individual seller. If you are buying this land from a registered company or builder, you can check the details on the RERA website.
RERA requires all states and union territories to have online records, saving consumers time in verifying documentation processes. The RERA State website will also contain game details, layouts and documents.
But note that only builders and developers fall under the jurisdiction of RERA. Individual landowners do not fall under the RERA.
Civic amenities and infrastructure
Before buying the land, explore the surrounding area and ensure that the land is easily accessible from the main road via the connecting arteries. This will appreciate the price of the property. Also check that all civic amenities such as water supply, electricity and sewage are in place.
Due diligence and documentation
This is a must if you are buying from a private individual, in which case there may not be a RERA registration.
Saransh Trehan, Managing Director of the Trehan Group adds: “The documents you need to check are the title deed, the charge certificate and the latest property tax payment receipts. Ideally, you should ask for original papers for verification and a photocopy for proper due diligence. Make sure the seller has full selling rights. You can check ownership details on the state government registration website. Taking the help of a real estate expert or a lawyer is also advisable.
How to apply for a plot loan
You could take out a loan to buy the land. The interest rate generally starts at 7.55% per annum, depending on your credit score. They offer 70-75% of the total value of the plot. Banks only grant loans within the boundaries of their municipality, so it is best to always check the availability of loans when looking for land. Only a handful of banks provide land loans.
If you need the capital for the construction of a property on this land, you can also apply for a construction loan. The interest rate usually starts at 6.55% per year, depending on your credit score. If you need the capital to buy land as well as build a house on that land, you can opt for a composite loan, which will provide you with the capital for both. This would ideally be the best option, but the interest rate is usually higher compared to a land loan.
The maximum repayment term varies from 20 to 30 years. The bank usually gives six months to start construction and imposes a penalty if construction does not start by then.
The downside of land loans is that you cannot claim the tax benefits until your home is completed. Then you can convert your loan into a regular home loan and claim tax benefits of up to Rs 2 lakh under Section 24 B of the Income Tax Act 1961. The lender may also reclaim a portion of the Equivalent Monthly Installment (EMI) paid for the principal sum, which may be reclaimed under Section 80C of the Indian Income Tax Act 1961.
Loan at value for the purchase of land
According to Swaminathan, lenders typically disburse around 70-80% of the actual cost of the land as the loan value, although in some cases you can get a loan for a higher percentage.
“Typically, lenders decide that the EMI amount for the land loan should be around 50% of your net monthly income and base the loan disbursement amount on that value,” he says.
Lower loan term
The term is also short, compared to the term of a home loan.
Swaminathan adds, “While a home loan has a maximum tenor of 30 years, a land loan is usually in the 10-20 year bracket. Thus, you will have to be prepared to pay a higher loan repayment amount each month.