Investing In Non-Agricultural Land

Investing In Non-Agricultural Land...!

by Mr. Mayank Saksena, JLL India

Buying plots of land can be a time-consuming and expensive affair. Not only can the initial phase of buying it be quite complicated, but the cost involved in maintaining a purchased plot can also be quite high.

Non-agricultural..!

Moreover, there are often issues related to clarity on the title, and handling the regulation process can be quite tedious. The solution to this lies in buying non-agricultural land directly from a local authority.

While buying non-agricultural land, there is a standard proviso that it must be developed within a specified time limit. On the other hand, NA land situated at the fringes of a city’s limits can also be bought from private developers.

Mayank Saksena,
JLL India.

Taking this route saves the buyer the hassles of obtaining the various approvals, since this has already been taken care of by the developer.

Clearing Some Myths..!

Tax benefits..!

 It is commonly assumed that there are no tax benefits in buying land as against buying a house. It is true that, unlike a loan taken to acquire a property, the interest payable on a loan taken to buy a plot of land is tax deductible only if that land is used for generating income. In any case, the principal is not eligible for any benefit.

However, the interest can be capitalized and added to the cost of acquisition of the plot. This can help in reducing the capital gain tax liability at the time of sale of the plot.

Cost..!

 One does not need tonnes of cash to buy land. Even moderate investments to the tune of Rs. 5-10 lakh in a good location are quite capable of yielding worthwhile returns in the long term (usually 5-7 years, but 10-15 years is always a better bet).

Loans..!

Contrary to common belief, banks DO provide financing for buying land from statutory bodies or reputed developers. That said, it should be borne in mind that the interest rates for buying land are about 1% to 2% higher when compared to regular home loans. Also, the tenure of such a loan is restricted to a maximum of 7 to 10 years.

Liquidity..!

 Since non-agricultural land is not easily saleable, the investor’s liquidity gets restricted. Land can, however, be used as collateral for securing credit from financing institutions. Though it does not provide any merit to the business proposal, it does take care of the cash situation.

Some Common Apprehension

Encroachment / Zoning Law Changes..!

The most common fear that someone aspiring to buy land faces is the encroachment of the property, or zoning changes. (The ideal way out for this is to buy into clearly demarcated NA plot schemes.

Not only are chances of infringement low, but quick redressal is possible in case of complications because a large number of people are involved in these schemes.)

Payment..!

Land purchase transactions involve a lot of up-front capital, as sellers of NA plots may demand cash payment.

This could lead to a lot of legal hassles later on. (Obviously, the solution is to ensure that one has adequate funds in one’s kitty before considering such a purchase.)

Caution..!

Non-agricultural Status..!

 If the conversion of a plot of land to non-agricultural status is still underway, it means that the local authorities still retain the right to make changes in the plans submitted to them.

In other words, the status of land acquisition rights by the Government (or any other authorities) for any purpose is not clear. The status of any particular plot number can change at any time within the plan

Individual Purchase..!

Buying land individually is risky from a title point of view. The development of basic requirement like road, water and electricity could also be costly.

Even if these basics are already in place in a developed non-agricultural plot and the buyer constructs a farmhouse or weekend home on it, the maintenance of the property can be a challenge for a sole owner.

Security is another issue to be considered. It is always safer to buy NA land in groups, in a society or from a developer who offers common facilities.

Definitions..!

Non-agricultural..!

Development of a built-up property is allowed only on NA land. The land’s status needs to be changed from agricultural to non-agricultural for any such development. This can be done through the local collector office.

Non-agricultural Plot / Bungalow Plot..!

A non-agricultural plot is a non-agricultural piece of land on which construction of any type (such as a bungalow, shop, office, industrial unit, etc. can be done as per the zoning demarcated. The term NA primarily encompasses residential, commercial and industrial properties

 Mr. Mayank Saksena, Managing Director – Land Services, JLL India

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