Is buying land a good investment?

A plot of land can offer better returns in the long term compared with built property, but purchasing it can be problematic if you are not vigilant.


    For 32-year-old Sumana Chatterjee and her husband Sumitro Mukherjee, 33, it was a fruitful end to house hunting when they bought a plot of land in Vadodara, Gujarat. However, a few months after paying the full amount, the couple was shocked when they received a stop work notice from the court on the construction of their bungalow. “We found that there was another claimant for the land and that the property was under litigation,” says Chatterjee.
    The couple had no reason to be suspicious as many of their friends had invested in the same project. “We had a tough time getting our money back. As we had taken a personal loan, we lost nearly 1.5 lakh in interest payments,” says Mukherjee.
    The duo could have avoided the botheration if they had verified all the documents before buying the plot. Unfortunately, most buyers are unaware of the paperwork involved and the facts that need to be corroborated; the sellers exploit this ignorance to con them.
    One needs to go through several records to verify the legality and authenticity of the land and ownership (see box), or check
if it is agricultural. “If it is, a nonfarmer may not be able to buy it unless he has permission from the district collector,” says Nilesh Patel, managing director of Patel Trading Company, a Mumbai-based property trading firm with realty projects in Maharashtra.

Buyer’s checks: The first thing a buyer should crosscheck is the title deed and the ownership of land for the past 30 years. If the owner can’t be present when the deal is being conducted, he can authorise someone to sell the land on his behalf through a power of attorney (PoA). However, most frauds related to land transactions involve PoAs, so it is advisable to check with a lawyer before signing on the dotted line. In the case of NRIs, the PoA should be signed by an officer of the Indian embassy in the presence of a witness.
    Even if your documentation is in order, there can be other problems, such as encroachment. “If you are not vigilant, there is a chance that the property will be encroached upon by anti-social elements,” says Partha Gupta, director of Gujarat-based Ideal Interactive & Folio Services Pvt Ltd, which trades in realty plots in Maharashtra as well as Gujarat.
    This problem can be avoided if buyers resort to some safeguards. Manoj Asrani, marketing head, Soham World Property Developers, says, “The buyer should hire a solicitor who can enlist the property and ensure that the neighbours are aware of the
    purchase. He must also put up a fence
and a notice board stating that the property belongs to him.” Finance can be another roadblock a buyer comes up against as most banks and housing finance companies do not provide ans for purchase of plots. You will have to opt either for a personal loan or take one for constructing a home, that is, for buying the land and building a house on it. Other options: Most people prefer to purchase a built residential property because of the legwork involved in buying a plot. “It’s also a better option as you can get rental income even as the price of the property appreciates, which you would lose out on if you were to buy a plot,” says Gupta. However, he iterates that the rate of return for land is usually more than that an investor would earn from his investment in a residential project. Concurs Pinkesh Teckwani, head, land & industrial services (west India), Jones Lang LaSalle India: “In a good location that is witnessing the right kind of development, land prices can grow by 30-40% as opposed to the 12-15% growth rate for apartments.”
    Are high returns an incentive enough to go for an investment fraught with worry? A novel option that has come up recently is plots in townships or gated communities. To escape fund crunch, many developers have started selling plots in extended suburbs or remote areas at cheap rates. “Plots in townships have decent infrastructure development and are generally protected against encroachments,” says Asrani. While such plots can be good investments, they haven’t taken shape yet and will take some years to develop.

Before you buy land, check for these…
7/12 document: This is the basic document of title and proof of rights. It includes the name of owner/tenant, land area, agricultural land survey, etc. It is available from the tehsildar of the village. It is read in conjunction with the 6/12 document, which records how the land has changed hands, and an 8/A booklet, which contains details of payment of land revenue tax, etc.
Encumbrance certificate: This certifies that the land is not involved in a legal dispute. It can be obtained from the subregistrar’s office, where the deed for the land has been registered. The encumbrance certificate is normally available for the past 13 years, but if you need, you can ask for one that goes back 30 years.
Release certificate: The seller could have pledged the land previously to take a loan. To ensure that all the loan payments have been made and that no amount is due, ask him to produce the release certificate from the bank. Also, in case of more than one owner, it is advisable to ask for release certificates from all of them.
Demarcating the boundary: Measure the land and check that the dimensions stated by the seller are accurate. You can get a recognised surveyor to do this or can take a survey sketch of the land from the Survey Department and compare it for accuracy.
Agricultural land: Only a farmer is eligible to buy an agricultural land. If you are not one, you will need to take permission from the district collector. You will also need to check the land revenue tax receipts. These are issued to agriculturists by the village tehsildaron payment of land revenue tax.
Adivasi land: Adivasi/tribal land can be traded only among recognised tribes. A transaction not within this ambit is not legal, unless taken over by the government for projects or as part of a land acquisition scheme.
Reservations/acquisitions: Check if the land has been reserved for a particular project, such as irrigation, or if the owner has been notified about an acquisition project by the state or central government.