Buying a plot of land in undeveloped areas is a popular property investment option for many. This has various advantages. One, the ticket size of these investments is smaller compared with what is needed for buying a competed home. Two, as the city expands and infrastructure develops, land value in these locations increases. Three, land does not depreciate and maintenance is also lower compared to other property investments. These aspects make land a sought-after asset for many long-term investors.
Returns from land have also been decent. According to several studies and reports, among other asset classes such as mutual funds, bonds and equities, land has the maximum capital value appreciation in a tenure of 15-20 years, says Narasimha Jayakumar, Chief Business Officer, 99 acres.com.
That said, there have been many legal and other issues in the past with land investments. Also, recently, the Madras High Court made certain rulings that have led to a lot of uncertainty for lakhs of land buyers in Tamil Nadu. Investors must hence be aware of the risks and ways to mitigate them when buying land in peripheral locations.
Title issues
Compared to buying a flat in the city, a vacant plot of land may require more legal due diligence to ensure that there are no ownership issues. For one, the seller may really not be the owner of the land that is being sold; it may have been leased or gifted to them. For example, if the plot was given to freedom fighters or ex-servicemen by the Government, you need to get the District Collector’s permission to transfer the land title.
Another common issue you may face is the lack of clarity on the legal heirs. For instance, all the rightful heirs of the original land owner, who may be no more, would not have been fully recorded in the documents. As a result, after you purchase the land, someone may lay claim to the property and you may have to handle the legal dispute, warns Shyam Sundar, a property lawyer. To avoid this, you must check the legal heir certificate.
Also, when checking documents, it is in your best interest to refer the original documents rather than photocopies, advises Jayakumar. You must also insist that the seller provides an Encumbrance Certificate from the sub-registrar’s office, which verifies that the property is free from any legal disputes and unpaid dues. You must also check that prior loans are paid off and the property is clear from any financial dues.
Agri land restrictions
Often, it is farmland that you may end up buying. However, buying agriculture land has various restrictions and the rules also vary with States. For one, non-resident Indians, persons of Indian origin and overseas citizens of India cannot purchase agricultural land, plantation property or farm houses. Many States also insist that only agriculturists can buy farm land. There are also ceilings on the amount of land you can hold, which vary with the State.
After buying agriculture land, you may eventually have to convert it into a residential plot before developing it. Such a change in purpose requires approvals by government authorities and it may be denied.
Unfortunately though, many plots and layouts are being sold without permission from concerned departments. For instance, in Tamil Nadu, agricultural land, particularly wetland (cultivable agricultural land with irrigation sources) in various parts of the State, were sold as unapproved layouts.
The Madras High Court recently took exception to such registrations of land without proper conversion procedure. As a result, sale of wetland is not permissible now.
To develop agriculture land, you need to do a conversion of purpose; this may not be easy in many States and involves large delays. States such as Kerala have strict rules for re-classifying wetland. Others such as Karnataka have a procedure for re-classifying dry land for non-agriculture use.
It is safe not to buy wetland and opt for dry land. Even with dry land, you must understand the conversion rules in the State and determine how long it will take to meet the criteria.
Approving authority
When buying a plot, you may often find that the layout or individual plot may be advertised as panchayat-approved. In this case, the layout developer registers a gift deed in the name of the panchayat, surrendering common areas earmarked for roads, parks. While approval by the local agency seems to provide some comfort, the fact is that village panchayats do not have the power to sanction plot layouts.
Unfortunately, a sizeable number of plot sales is in unapproved plots. In Tamil Nadu, for instance, about 2.5 lakh registrations pertain to the sale of plots in layouts; of this, less than 50,000 plots are authorised by planning agencies such as CMDA and DTCP.
These planning authorities have the big picture view on which locations are to be developed and which are ear marked for other projects.
Recently, the Madras High Court banned the registration of plots and houses in unapproved housing layouts. So anyone who has bought unapproved land cannot sell the property until the government brings in a Regularisation Scheme, says Sundar. This may affect an estimated 60 lakh people in the State. There have been precedents for regularisations in Gujarat and Andhra Pradesh, he notes.