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Land as an investment option has always been popular in India. Its popularity has not receded, despite the availability of various financial products such as mutual funds and equity shares. However, you should be aware of all the pros and cons of investing in land.
Limited supply of land
Other than a few reclamation cases, the supply of land is limited and the possibility of creating more, is quite impossible. Due to its limited supply and the ever-increasing need, the demand for land has only been going up. However, this continuous demand has ensured that the price of land hasn’t experienced volatile changes like with other assets like gold and equity.
Land is a big ticket and illiquid investment
The amount of money required to invest in land is substantial. Those with less savings, cannot afford to invest in land. Instead, they should opt for financial assets such as units of mutual funds, shares, recurring deposits or even gold. Moreover, investment in land is relatively illiquid and you cannot dispose of this investment as and when you want to encash it. In some cases, the time taken for the sale to actually happen, may run into years, thus, defeating the purpose of making the investment in the first place.
Risk of acquisition and encroachment of land
We have all come across stories of encroachment of land causing investments to sink. In some scenarios, your legal right over the land gets jeopardised, resulting in litigation and unnecessary legal costs. These auxiliary expenses can sometimes outweigh the appreciation in the value of your land. There’s also the risk of the land being taken over by the government by way of compulsory acquisition. The compensation received, may not always be satisfactory. A prime example of such a scenario is the acquisition of land in the Noida Extension case.
Non-availability of finance for buying land
In order to buy or construct a house, loan seekers can only get up to 80% of the value of the property. In case you want to construct a property on a plot of land, you can get a composite loan covering the cost of the plot and cost of construction. However, no bank will generally lend money to buy a plot of land, unless the same is purchased from an endorsed and reputed government development authority like DDA or MHADA.
In the event of a home loan, you can claim tax benefits with respect to interest payment as well as principal repayment, under Section 24 and 80C of the Income Tax Act. No such provision exists for the interest paid on money borrowed for investing in land.
(The author is a tax and investment expert, with 35 years’ experience)