Investing in a piece of land can be much more profitable than investing in apartments or floors, as the appreciation is much higher.
According to a report by Anarock, the top-seven cities of Bengaluru, Chennai, Hyderabad, Pune, Kolkata, Mumbai Metropolitan Region (MMR), and National Capital Region (NCR) and NCR) have witnessed a new trend of supply in plots since 2020.
Not only that, there has been decent appreciation over the last two-and-a-half years as well. Although, the appreciation of plot is high compared to a flat or apartment, investing in a plot can sometimes be tricky. Here are few things to look out for when investing in a plot.
Choose The Type Of Plot Carefully
Buyers can choose from different types of plots, such as residential, commercial, or agricultural.
Says V. Swaminatham, executive chairman, Andromeda Loans and Apnapaisa.com: “That said, not all lenders approve loans for all kinds of plots, as many prefer to offer loans only for residential plots. It’s a good idea to speak with the bank branch to confirm the loan for the particular type of plot you plan to buy.”
Under the Real Estate Regulatory Authority Act, 2016, RERA committees have been set up across India to promote uniformity and transparency, as well as regulate the real estate sector.
That said, RERA will not apply if you are buying a plot from an individual seller. If you are buying that plot from a registered society or a builder, then you can check the details on the RERA website.
RERA requires all states and Union Territories to have online registrations, thus allowing consumers to save on time to check on the documentation processes. The state RERA website will also contain details of the play, layouts and paperwork.
But do note that only builders and developers come under the jurisdiction of RERA. Individual plot owners do not come under RERA.
Civic Amenities And Infrastructure
Before buying the plot of land, scout the nearby area and make sure that the plot is easily accessible from the main road via connecting arterial roads. This will appreciate the price of the property. Also check that all civic amenities like water supply, electricity and sewage connections are in place.
Due Diligence And Documentation
This is a must if you are buying from an individual, in which case, there is possibly no RERA registration.
Adds Saransh Trehan, managing director, Trehan Group: “The documents you need to check are the title deed, encumbrance certificate, and the latest property tax payment receipts. Ideally you should ask for original papers for checking and a photocopy for proper due diligence. Ensure that the seller has full sale rights. You can check the ownership details on the state government’s registration website. Taking help from a property expert or lawyer is also advisable.”
How To Apply For A Loan For Plots
You could take a loan to buy the plot. The rate of interest usually starts from 7.55 per cent per annum, depending on your credit score. They offer 70 to 75 per cent of the total value of the plot. Banks only provide loans within their municipal boundaries, so it’s better to always check the availability of loans, when scouting for a piece of land. Only a handful of banks provide the loans for plots.
If you need the capital for construction of a property on that plot of land, you can apply for a construction loan as well. The rate of interest usually starts from 6.55 per cent per annum, depending on your credit score. If you need the capital for purchasing a plot as well as for constructing a home on that plot, then you can go for a composite loan, which will provide you with the capital for both. This would ideally be the best option, but the rate of interest is usually higher compared to a loan on a plot.
The maximum tenure of repayment varies from 20-30 years. The bank usually gives six months of time to start the construction, and imposes a penalty if the construction doesn’t start by then.
The downside of the loans on a plot is that you cannot claim tax benefits until the construction of your house is complete. Then, you can convert your loan to a regular home loan, and claim tax benefits of up to Rs 2 lakh under Section 24 B of the Income Tax Act, 1961. The lender can also claim a part of the equated monthly instalment (EMI) paid towards the principal sum, which is entitled to be claimed under Section 80C of the Indian Income Tax Act, 1961.
Loan-To-Value For Buying Plot
According to Swaminathan, lenders typically disburse around 70-80 per cent of the actual land cost as loan value, although in some cases, you could get a loan for a higher percentage.
“Generally, lenders decide upon the EMI amount for the plot loan to be around 50 per cent of your net monthly income, and base the loan disbursal amount on this value,” he says.
Lower Loan Tenure
The tenure is also short, compared to the tenure on a home loan.
Adds Swaminathan: “While a home loan carries a maximum tenure of 30 years, a plot loan generally falls in the bracket of 10-20 years. Thus, you will have to be prepared to pay a higher loan repayment amount every month.”