You can never lose money in uncertain times by investing in land. Other asset classes like equities, bonds , currency, commodities will show extreme price volatility while land prices are normally less liquid and therefore less volatile. Logically, as India’s population expands, we will need more houses and cities will expand to accommodate that. As there is only a certain amount of land available on the outskirts of the city, supply restrictions and rising demand will force an upward price spiral. There are however many challenges in buying land and it is very difficult for the lay man to understand the risks involved.

This article tries to highlight several common problems one faces in investing in land which are often overlooked in the haste to make a quick buck. What is the easiest way to make a fortune in real estate investing Land at the outskirts of cities often have a low FSI ( build to land ratio and this helps the acquirer get the land cheap. As the population of the main city increases year on year, the city gradually expands and the “outskirts” now come inside the city Municipality limits. Land with FSI as low as 4% suddenly gets upto 100% FSI and the land value skyrockets over 25 times.

Hurdles in buying agricultural land

According to Ramesh Gulati, VP, AbodesIndia.com, , ” The best way to invest is to buy cheap land on the outskirts of cities. The primary hurdle in acquiring land on the outskirts of cities is that most regions have protective regulations for farmers and allow only farmers to hold and trade such land.”.

Identify pockets which have a potential to appreciate quickly based on a review of the Town Planning maps for the city that you reside in is the first step towards finding out the exact location where one can invest. Having done this one needs to get a deep understanding of building regulations based on the development Control Regulations prevalent in the city.

Land records in India are yet to be completely digitized and this proves to be a fresh challenge in buying land. Often the original seller has sold the same land to multiple buyers as there is no transparent “exchange to buy and sell land”. The title on land is the most difficult thing to establish as legal documents made by historical buyers of the same property have to be all correctly drafted to ensure that your current purchase transaction is not rendered null and void. This involves a elaborate legal search process to establish the historical transfer of title. A new buyer can protect himself by acquiring land that has not be too frequently traded.

Land transactions in India have a high degree of “cash payments” as people try to avoid paying the high stamp duty rates charges in many states that can go as high as 15-18% and therefore understate the value of the property on the sale agreement. This practice results in your having to pay a higher capital gain tax at a future date at the time of sale. An innovative method to reduce stamp duty incidence is to buy the property inside a company and sell the property through the transfer of the company’s shares. This reduces the stamp duty incidence to just 0.5% any where in India.

Can I leverage my capital?

Leveraging is often difficult as Lenders don’t give home loans for land purchases . However there are many innovative ways to leverage one’s capital that are often practiced by the seasoned investor. One of the most frequently used methods is called ‘Seller’s Credit” in which the Buyer convinces the Seller to accept partial upfront payment for the land and then take the balance over a period of 2-3 years. In the mean time the buyer through a legal document takes the full rights to transfer the land at a profit to another buyer at a higher price, without actually paying the original seller the full price of the property. This however can be only be done in a rising real estate market .

How much should I invest and what should be my investment horizon?

Land investments are very illiquid and one must take at least a 5-10 year horizon in investing. As the city expands over time real estate appreciation is also going to take time. For a young person, 25-35 of age, not more than 25-30% of his net worth must be invested in illiquid real estate assets. Clearly land investing is your best bet for retirement as land and equities have historically given superior returns compared to investing in fixed deposits, gold and commodities. Land investing requires patience and the legal expertise to ensure that the title of the land is secure. Companies like Albertsville Enterprises Pvt. Ltd. are pioneers in land investing advisory services in India and have their product offering on www.AlbertsvilleAMC.com

The author is a VP with AbodesIndia.com,

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