“Buy land, they’re not making it anymore.” These wise words by Mark Twain still hold true. Investing in a plot of land is often considered more profitable than other asset classes. This is largely because of huge demand and limited supply. In this tutorial, we will give you all the information required for investing in a plotted developments.
The advantages of plotted developments
Low capital investment
Plotted developments mostly do not require huge capital investment. Unlike other property types, the entry level for plots is on the lower side. However, due to constant demand, capital appreciation for plots is steady.
Flexibility
Plotted developments offer you the flexibility to construct your home as your preference and taste. These days many developers offer plots within a gated community where you have the luxury of building your own home with the full-fledged amenities that one might expect while living in an apartment complex.
Low maintenance
Plotted developments maintenance cost for plots is almost negligible unless it is within a gated community. Also, the property tax from plots is lower compared to other residential properties.
Better resale value
Plots have better resale value and are easier to sell.
Timely completion
Considering the lower execution risks involved in plotted developments there are fewer chances of delay in completion.
Secondary source of income
You can have a secondary source of income by leasing or renting your plot of land for parking or farming purpose or whatever is suitable as per the location.
The disadvantages
- The supply of land is limited. Thus, usually one has to move towards the peripheries to own a plot of land.
- Not all banks approve loans for plotted developments unless the same is approved by the nodal of that particular city.
Approving authorities
- In Chennai, the Chennai Metropolitan Development Authority (CMDA) and Directorate of Town and Country Planning (DTCP) are the nodal agencies responsible for issuing land layout approvals.
- For Hyderabad, Greater Hyderabad Municipal Corporation (GHMC), Hyderabad Metropolitan Development Authority (HMDA) or Directorate of Town and Country Planning (DTCP) are the approving agencies.
- For Bangalore, consider plots that are approved by Bangalore Metropolitan Regional Development Authority (BMRDA) or Bangalore Development Authority (BDA).
Loan for plots
You can either buy a plot of land purely as an investment, or you can buy one to build a home.
If you need a loan to buy the plot, though, you need to apply for a land loan. Land loans are similar to home loans in several ways, but they do have a few differences.
- For starters, a land loan can only be taken for residential plots.
- The tenure of a land loan is much shorter than that of a home loan and usually ranges between 5-15 years. This means that your EMI will also be relatively higher.
- The loan to value ratio of land loan lies between 60-75% and most lenders have a cap on the maximum amount that you can borrow.
- The eligibility criteria and documents required remain quite similar to that of a home loan. You need to show original documents of land ownership and the Title Deed. Some banks may have a clause where they expect you to start construction within six months of the purchase. So, check before you finalise a lender.
- If you are constructing a property, you will have to provide the bank with copies of the approved plans and drawings from the architect.
- If it is a converted land, lenders will ask for the conversion order, and receipts of conversion and development fees.
- Unlike home loans, you do not get any tax benefits on the principal and interest on a land loan. But, once construction is finished, you can get the exemptions that apply for regular home loans.
Tread with caution!
- Select a development which has good connectivity to the city centre.
- If you are buying for investment purpose, have a mid to long-term horizon.
- Check for all the documents like Sale Deed, Title Deed, etc., and get it verified by a reputed lawyer.
- Pay an advance only after seeing the original documents.
- Choosing a known developer will keep you away from all the legal hassles.