Don't lose the plot while buying land: Hire a lawyer to verify legal title

Plots don't age, offer better RoI than apartments

Since the onset of the pandemic, the demand for plots has risen across the country. Experts say plots are likely to offer better returns than apartments in the near future.

Demand-supply mismatch

The demand for independent houses, and consequently for plots, rose in the wake of the pandemic, as buyers felt the need for greater seclusion.

According to Anuj Puri, chairman, Anarock Group, “Covid-19 strengthened the demand for land as a long-term investment. The trend of investing in plots is evident in Bengaluru, Hyderabad, Chennai, and Gurugram.”

The demand for more space has also played a major part.

Says Vikas Wadhawan, group chief financial officer, Housing.com, Makaan, and PropTiger: “The hybrid work model has led to the demand for bigger homes, and therefore, for plots.”

Earlier, developers focused mostly on apartment projects, where they enjoyed higher margins. In recent times, they have responded to the demand for plots.

“Several large and listed developers have come forward to launch plotted developments amid growing consumer demand,” says Puri.

Higher return on investment (RoI) likely

Plots are likely to offer investors a higher RoI than apartments.

“Plots don’t age. In well-established localities, as empty plots grow scarcer, their value appreciates. On the other hand, apartments suffer wear and tear and their value depreciates with time. Buyers, too, prefer to purchase within new projects,” says Pradeep Mishra, founder, Homents, a National Capital Region-based real estate consultancy.

After the pandemic break-out, the demand for plotted developments went up, but supply (within developer projects) was relatively less.

“The mismatch between demand and supply led to plot prices appreciating 13-21 per cent annually between 2018 and 2021 across major cities,” says Wadhawan.

Some of the risks that exist in apartments get mitigated in the case of plots.

“The risks that delivery may get delayed, or construction quality may not be of the promised standard, get mitigated in plots,” says Wadhawan.

In plotted developments, developers are able to deliver within six to 12 months since all they have to do is provide the basic infrastructure.

Beware of land-grabbers

A major risk while purchasing a plot pertains to its legal title. Another important one comes from land-grabbers.

“If the plot is not situated within a gated community but in a secluded, distant area, you don’t visit it frequently, and have not built a wall around it or posted a guard, then it could get taken over,” cautions Mishra.

Security concerns (theft or robbery) also tend to be higher in independent houses than in apartment complexes.

Plots, too, are subject to market cycles. Plot prices were mostly stagnant across the country between 2013 and 2018-19.

Verify title

The biggest challenge when investing in land is getting a clear title.

“There is a higher probability of litigation when buying a plot. Get a professional to verify the legal title,” says Puri.

According to him, buyers need to ensure all the approvals and certificates (title deed, release certificate, property tax receipts, etc) are in place. The land-use zone of the plot (residential or commercial) should be verified from the city masterplan. These checks should be done even when buying within a developer’s project.

When buying a plot in a peripheral location, end-users should check its connectivity and state of surrounding infrastructure. Investors should remember that the completion of a key infrastructure project can provide a significant boost to land prices in the area.

Prices of residential plots rose 7 per cent annually between 2015 and 2021

Prices of apartments rose by only 2 per cent (CAGR) on average across top-eight cities during same period

 

City	Plots (Rs/sqft) in 2021	Plots 2018-2021 (CAGR)	Apartments (Rs./ sq ft) Jan-Sep 2021
Gurugram*	12,000-12,200	15%	5,900-6,100
Hyderabad	2,100-2,300	21%	5,800 - 6,000
Chennai	2,500-2,700	18%	5,300 - 5,500
Bengaluru	2,000-2,200	13%	5,400 - 5,600

 

*Plot prices don't include Sohna

Average price of apartments in India is Rs 5,500-5,700 /sq ft, and of residential plots is Rs 1,600-1,800 /sq ft.

Source: Housing.com

Financing issues

Loans for purchasing plots usually come at slightly higher interest rates than home loan rates.

“More than the interest rate, the shorter tenure of these loans pushes equated monthly instalments higher,” says Adhil Shetty, chief executive officer, BankBazaar. 

While home loans can have a tenure of 20-30 years, the tenure for plot loans doesn’t usually exceed 15 years.

The loan-to-value ratio of these loans also is not more than 70 per cent, whereas it can go up to 80-85 per cent in the case of home loans.

Section 80C benefit available on plot loans

1. A taxpayer purchasing a plot can claim tax deduction on the stamp duty and registration fees paid for it up to Rs 1.5 lakh under Section 80C of the Income-Tax Act
2. If the taxpayer has taken a loan to buy the plot, he can avail of deduction under the same Section on principal repaid   
3. However, deduction on interest repaid under Section 24(b) is not available, according to RSM India
4. Once construction on the plot is completed, the buyer can convert the loan taken to buy the plot and construct the house into a home loan by paying a fee to the lender
5. This will allow him to avail of Section 24 (b) benefit, according to BankBazaar