Buying land a good option in downturn

Published: March 17, 2009

Buying Land is a good optionSo said the famous playwright Mark Twain, and it holds true till date. Land values are known to appreciate more than 40-50 times, though, over a long period.

However, investors get bogged down by the procedure and legal formalities involved in the buying a plot of land. ET Intelligence Group takes you through some of the nitty-gritty of investing in land.

Invest in non-agricultural land:
A common perception is that buying land could be time consuming and an expensive affair. Not only in the initial phase but also the cost involved in maintaining a purchased plot is a Herculean task.

Moreover, there is not much clarity on the title, and the regulation process is quite tedious. The solution to this lies in buying non-agricultural (NA) land directly from the local authority.

However, this comes with a condition that it must be developed within a specified time limit. On the other hand, NA land situated at the fringes of city limits can also be bought from private developers. Thus it will save the buyer from the hassles of getting various approvals.

Tax benefits:
It is believed that no tax benefits accrue in buying land as against buying a house. It is true that unlike a loan taken to acquire a property, the interest payable on a loan taken to buy plot of land is tax deductible only if that land is used for generating income.

In any case the principal is not eligible for any benefit. However this interest can be capitalised and added to the cost of acquisition of the plot. This would help in reducing the capital gain tax liability at the time of sale of the plot.

Not just for the Richie rich: One does not need tones of cash to buy land. Small investments worth Rs 5-10 lakh in a good location would also be sufficient to give worthwhile returns (in 10-15 years). Banks also provide financing facility for buying land from statutory bodies or reputed developers.

However, interest rates are higher by about 1-2% as compared to regular home loans
and also the tenure is restricted to a maximum of seven to 10 years.

Since non-agricultural land is not easily saleable, the investor’s liquidity gets restricted. Land can however be used as collateral for securing credit from financing institutions. Though it does not provide any merit to the business proposal, it does take care of the cash crunch situation.

The most common fear is the encroachment of the property or the zoning changes. The ideal way out for this is to buy in clearly demarcated NA plot schemes. Not only are chances of infringement low, but also quick redressal is possible as a large number of people are involved in these schemes.

Transaction of such types involves a lot of cash as sellers may demand cash payment. It could lead to a lot of legal hassles later on.

Source: Economic Times

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