Tips for Buying a Plot of Land in India: Assessing Potential and Legalities

Tips for Buying a Plot of Land in India

Conduct a Thorough Site Visit

Before finalising a land purchase, it is essential to visit the site personally. Evaluate factors such as location, accessibility, proximity to amenities, and the surrounding neighbourhood. Pay attention to the quality of roads, availability of utilities like water and electricity, and any potential limitations or encroachments on the land.

Verify Legal Ownership and Title Documents

Ensure that the seller has clear and undisputed ownership of the land. Verify the land's ownership records, including the title deed, survey records, and previous sale/purchase transactions. Engage a legal professional to conduct a comprehensive title search and ensure that there are no legal disputes, pending litigation, or encumbrances on the property.

Check Land Use and Zoning Regulations

Understand the land use and zoning regulations applicable to the plot. Different areas have specific land-use categories, such as residential, commercial, or agricultural. Ensure that the intended use of the land aligns with the zoning regulations to avoid future complications or restrictions on development.

Confirm Building and Development

Approvals If you plan to construct a building on the land, ensure that the necessary building and development approvals are in place. Check if the land falls within the jurisdiction of the local development authority or municipal corporation and confirm that the required permits, such as building plan approvals, have been obtained.

Verify Environmental Clearances

For certain types of land, such as those near water bodies or protected areas, environmental clearances may be required. Verify if the land has the necessary environmental approvals and clearances from relevant authorities. This step ensures compliance with environmental regulations and helps avoid potential legal issues in the future.

Understand Infrastructure Development Plans

Research is ongoing and planned infrastructure development in the area surrounding the land. Look for factors such as road expansions, upcoming metro or railway stations, schools, hospitals, and commercial developments. Infrastructure development can significantly impact the land's value and potential for appreciation.

Engage Professional Assistance

It is advisable to engage professional assistance throughout the land buying process. Consult with a reputable real estate agent, property lawyer, or land surveyor who has expertise in land transactions. Their guidance will help you navigate legal complexities, understand market trends, and make informed decisions.

Selecting the Type Of Land

Land can be used for agriculture (farming) or non-agriculture purposes like housing, businesses, or industry. If you want to use agricultural land for non-agricultural purposes like construction, you need special permission called a Change of Land Use Clearance (CLU).

Agricultural land is usually bought to farm crops, keep the land, or sell it later at a profit. Non-agricultural land is for building homes, offices, factories, etc. Agricultural land in remote areas tends to increase in value slowly over time. Land for housing, businesses, and industry usually increases in value faster. You don't get tax benefits for loans to buy agricultural land, but you do for non-agricultural land and construction. There are also rules about how much you can build on a piece of non-agricultural land, called the Floor Space Index (FSI).This doesn't apply to agricultural land. The FSI indicates the maximum total floor area you can construct relative to the land area.

It's possible to buy agricultural land and later convert it to non-agricultural use by getting a CLU, but this process can take a long time. It's usually better to have the CLU already when buying non-agricultural land.

Benefits Of Investments in Plots

Buying plots of land can be a good investment because:

• Over the long run, the value of land tends to increase which gives you higher returns on your investment.
• You have flexibility in what you can do with the land - build houses, offices, shops, etc. and either sell or rent them out.
• Plots in areas with growing businesses and good transportation links tend to increase in value faster.
• Property taxes on plots are usually lower compared to built properties.
• There are almost no maintenance costs for an empty plot.

Locality Analysis for Buying a Plot

The location of a property plays a big role in how much its value can increase over time. Investing in land plots in areas that have room for future growth tends to be a good investment. So when buying a plot of land in India, it's very important to carefully consider the location.

An ideal location for buying a plot should have:

• Easy access to transportation, water, and electricity.
• Be close to important residential and commercial plot areas.
• Show positive economic and social growth in that region.
• Have impressive upcoming infrastructure projects that will develop the area further.
• Good connectivity to access developed markets and cities.

The location needs to be viable for the real estate investment to give good returns. The best locations to invest in are areas that are still developing or just starting to develop. Buying plots in these up-and-coming areas allows you to get in at lower prices, and as development happens, the prices will go up.

Land Evaluation

There are several common methods used to determine a land's value:

Comparative Analysis

Look at recent sales prices of similar nearby lands and compare to estimate the value, adjusting for differences in size, features, etc. This requires having good data on other sales in the area.

Extraction Method

Take the total value of the property (land + buildings) and subtract the depreciated value of the buildings to estimate just the land value. Best for newly built properties.

Development Method

Consider the full future potential of the land based on location, zoning laws, area you can build on, and any planned nearby development. This projects the highest possible future value.

Allocation Method

Use known data on property values and their land portions to calculate estimated land values for other properties in that area.

Belting Method

Divide the land into zones based on distance from the main road, giving higher values to areas closer to the road frontage.

Consider The Risk Involved in Buying A Plot

When you invest in buying a plot of land, there are several important risks to consider:

• Title Issues - You need to make sure the seller actually owns the land fully and has a clear title. Problems with the land title can cause big disputes.
• Land Use Permits - If you want to use farmland for housing or business, you need special permits to change the land usage, which can take a lot of time and effort.
• Zoning Restrictions - Certain plots may be in reserved zones where no building or development is allowed based on the area's master plan.
• Lack of Liquidity - Land is not a liquid investment, meaning it's hard to quickly sell and get your money out when needed.
• No Income Stream - Unlike a rental property, just owning vacant land doesn't generate any regular income until you sell it.
• Long Investment Period - To get good returns, you usually have to hold the land for many years until prices go up enough based on area development.
• Encroachment Issues - There can be disputes if others start occupying or using the vacant land illegally.

Important Documents To Check Before Buying A Plot In India

Before buying a plot of land in India, you need to carefully check several important documents. These include:

• The Title Deed - Title Deed proves who legally owns the land. Make sure it is properly stamped and registered.
• The Encumbrance Certificate - Encumbrance Certificate confirms the land has no legal or financial issues tied to it. It shows the history of ownership transfers.
• Property Tax Receipts - These show if all property taxes have been paid or if taxes are still owed.
• Na-Order Certificate - If the land was previously agricultural, you need this certificate allowing it to be used for residential or commercial purposes.
• Local Authority Approvals - The local government must have approved the plot for private ownership.
• Release Certificate From Banks - This ensures no loans are outstanding on the property.
• Stamp Duty And Registration Receipts - The previous owner must have paid required fees and registered the deed.

Loan Guide For Buying A Plot In India

Buying a plot of land requires a special type of loan from banks and financial companies. There are two main options - a Land Loan just for purchasing the plot, or a Land Plus Construction Loan that covers both the land and building costs.

Some key things to know about plot loans:

• Interest rates are similar to home loans, but some lenders charge higher rates
• The maximum loan amount is around 70% of the property value
• Repayment periods are typically shorter than home loans, up to 25 years
• Tax benefits only apply if you actually build a home on the plot
• There are penalties of 2-4% for paying the loan off early

What Do Different Land Zones Mean?

• Red Zone: Areas for schools, hospitals, places of worship, etc.
• Green Zone: Parks, gardens, agricultural lands, plant nurseries.
• Yellow Zone: Areas for both residential and commercial buildings. Light yellow is mostly residential, while dark yellow is mostly commercial.
• Blue Zone: This zone is an area for shops, offices, and other businesses. Dark blue is for retail stores and hotels, while light blue is for office buildings.
• Grey Zone: Areas for heavy industries and large manufacturing units.
• Purple/Violet Zone: These are the areas for factories and other industrial plot units. Sometimes, dark purple is used for technology-related industries.

The Final Word

Buying a plot of land in India requires careful assessment of its potential and adherence to legalities. By conducting a thorough site visit, verifying ownership and legal documents, understanding land-use regulations, and engaging professional assistance, buyers can make informed decisions. Additionally, considering infrastructure development, securing proper documentation, and conducting financial due diligence contributes to a successful and secure land purchase.