Pros & Cons of Investing in land in India
Investing in the land has always been a popular investment option in India. Its popularity has not declined, despite the availability of different financial products such as mutual funds and equity shares. Nevertheless, you should be aware of all the advantages and disadvantages of investing in land.
A limited amount of land
Other than a few recovery cases, the amount of land is limited, and the chance of creating more is actually impossible. Due to its inadequate amount and the ever-increasing need, the demand for land has only been going up. Though, this continuous demand has assured that the price of land hasn’t experienced volatile changes same as with other assets like gold and equity.
The land is a big ticket and illiquid investment
The amount of funds needed to invest in land is substantial. Those with fewer savings, cannot afford to spend on the land. Instead, they should opt for financial assets like in units of mutual funds, shares, recurring deposits or even gold. Besides, investment in land is almost illiquid, and you cannot dispose of this investment as and when you want to encash it. In some circumstances, the time taken for the sale to actually happen may run into years, thus, defeating the purpose of investing in the first place.
Risk of acquisition and encroachment of land
We have all come across stories of the encroachment of land causing investments to sink. In some situations, your legal right over the land becomes risked, resulting in litigation and unnecessary legal costs. These auxiliary expenses can sometimes exceed the appreciation in the value of your land. There is also the risk of the land being taken over by the government by way of compulsory acquisition. The compensation got, may not always be satisfactory.
Non-availability of finance for buying land
To construct or buy a house, loan seekers can only receive up to 80% of the value of the property. In case if you want to build a property on a plot of land, you can take a composite loan including the cost of the plot and the cost of construction. Nevertheless, no bank will usually lend money to buy a plot of land, unless the same is obtained from an endorsed and reputed government development authority like MHADA or DDA.
In the case of a home loan, you can claim tax benefits for interest payment and principal repayment, as per the Section 24 and 80C of the Income Tax Act. However, no such provision exists for the interest paid on money borrowed for investing in land.
It is advisable that one must visit a reputed law firm or take free legal advice from a property lawyer before investing in land and property in India.