Be it land, apartments or retail, the realty sector continues to be a ‘must-have’ in everyone’s financial portfolio. Despite a recent drop in property sales, real estate has not lost its charm for Indian investors. When looking for a secure investment option, purchasing real estate is a good place to start with. While investing in apartments or commercial realty require a significant financial capital, land investments require lower capital and can give you a significantly better return on your investments.
With metro cities and their outskirts poised for tremendous growth, investing in land would be the best way to capitalise on this growth. Land as an asset class is one of the most sound investment options as entry-level prices are low and hold great potential for big returns.
Why the outskirts?
While investing in real estate, especially within city limits turns out to be an expensive affair, the outskirts are emerging as preferred investment options, promising substantial returns. The increase in demand for housing and other real estate developments has lead developers to explore the outskirts for better options. If chosen wisely, these offbeat options can provide significant returns with very low investment requirements.
With the rise in employment opportunities in major cities, the rate at which people are migrating to the metropolitan areas has increased significantly. This migration causes the constant expansion of city limits, as the space available within the city is limited. This makes a city’s outskirts a viable investment destination. The locations, which are in close proximity to the high-growth areas, have more room for value appreciation.
However, such investments — whether it is land, apartments or second homes — require due diligence. Investors must seek answers to few important questions, the primary ones being the cost of the property and the potential for capital appreciation.
According to a McKinsey Global Report, all the profitability of real estate investments will depend on the development in and around the target location, which is why a research on the potential growth drivers of the area is essential. Investments near metropolitan cities will be perfect as the demand keeps rising with the expansion of city limits. Mumbai, Bengaluru, Pune and NCR outskirts will be important locations to invest in. The outskirt areas are developing at a faster rate, which leads to higher return on investments. The rates of the properties on the outskirts will be significantly lower compared with the well- developed or prime locations within the city limits.
Doing it right
Land investment, like any other investment option, comes with its own set of advantages and challenges. The main advantage in a tangible asset like land is that there is always a constant and steady demand due to which returns are more or less assured over time. Land investments include a variety of options like:
Residential development land: This is predominantly used to build independent houses, apartments or villas.
Commercial land: Its intended use is commercial office or retail space for rental or sale. Farm land: This is typically devoted towards agriculture. If you plan to try your hand at farming, then invest in a land after checking its fertility level. Also, there are different regulations state-wise on ownership rights.
Recreational land: This might be part of or qualify for several governmental programmes. Resorts and weekend homes could be developed over such land. It is necessary to procure permits from the municipality before development, or you can take help from a reputed developer. Land has low interest rate with a robust liquidity environment — this has built the reputation of land as one of the most viable investment options.
Land has better resale value with comparatively lower cost and property tax than properties within the city. Another advantage is that land is available at most locations in different sizes. It gives investors flexibility and scalability as it is possible to invest in small portions of land and keep increasing the holding over a period of time. However, buying land on an impulse will put our investment at risk. The investment requires good amount of research about the land and documentation involved like title deeds, land records, and zoning regulations. Also, analyse the current and proposed developments around the area. This will help in evaluating the value appreciation of the land.
Planning long-term financial goals is imperative while considering land as an investment. Land is not a very liquid asset and considerable efforts are required when it comes to finding a buyer at a fair price. Make sure you have an alternative source of income or savings, which can be utilised for any emergencies. In the long run, your land investments will fetch you capital appreciations when you decide to sell it.
Aligning long-term goals like securing your child’s future or building a retirement corpus with land investments would be a fair bet. Thus, careful planning and assessing your long-term financial goals will help you make a sound investment to maximise your returns.
Before investing, do a thorough research about the property and the surrounding location. If you decide to take help from a developer to ensure that all the regulations are fully adhered to, choose a reputed one, who has a good track record and clean market credentials. He should not only have the capacity to sell you the land, but also the ability to help maintain and sell the property at a later date, if required. It will be beneficial to work with a developer who understands your investment needs. This will enable you to get personalised advice and ensure that your investments are safe and hassle-free.
(The author is senior vice president, Expat Projects and Development Pvt Ltd)