Guidelines for investing in land

Jan 12 2013, 09:39 IST
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Flats are an inflexible format of property and this fences in the maximum value they can attain. (Reuters) Flats are an inflexible format of property and this fences in the maximum value they can attain. (Reuters)
SummaryAlso, land is cheap in most cases and represents a very good capital investment.

While flats are traditionally the most sought-after type of investment property, the attractiveness of buying land for long-term and potentially higher gains has never lost its sheen. Flats are an inflexible format of property and this fences in the maximum value they can attain. Flats are snapped up in most cases, but at fixed residential prices dictated by prevailing market rates. Land is a very different ballgame.

In a growth sector with new market drivers coming in, investing in a plot of sufficient dimensions and the right kind of authorised usage criteria for the area can become attractive to developers from the residential, retail, office and hospitality sectors. As an area attains more market drivers and begins to saturate, plots increase in value manifold and can be sold in a seller’s, not a buyer’s market. Also, land is cheap in most cases and represents a very good capital investment.

However, investing in land is not as simple as it may appear. To begin with, there might be (and usually are) any number of legal requirements to meet and procedures to follow before a piece of land becomes marketable.

Most buyers are aware of the difference between the Agricultural and Non-Agricultural (NA) categories — one cannot put in a development of any magnitude on agricultural land. However, even if the land is clearly NA, one still needs clearance from the local authorities to build on it.

Further, one should not purchase land without any idea of whether it is included in some other developmental plan. For instance, the town planning board may have scheduled a highway to run through it, or allocated it to the building of some government structure. If this is the case, one may own a piece of land and still have no right to do anything with it, including selling it.

In the case of highway construction or electrification, the owner may eventually wind up with a high-tension cable array perched in the middle of the plot, or an expressway running through it. There is no getting around the government’s prerogative of Eminent Domain. This is a very real risk when we consider land purchase in one of the cheaper rural areas which are constantly being hawked on the real estate market. Anyone hoping to develop land will, in any case, require a building permit.

A plot must have a clear title and be demarcated properly. Assuming that it has already

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