Home Truths. The plot gets interesting

Buying land is generally seen as a promising idea — either as an investment or as the first step to building a home. However, property encroachments, takeover by the government and other risks often deter buyers from purchasing a plot. Of late, there has been a revival of interest, with the launch of a slew of development projects consisting of plots (plotted developments). Here’s what you should know before you take the plunge.

What it includes

Plotted developments are sold by developers who purchase land, add some development and amenities and sell smaller plots to individual buyers. Features typically include internal roads, plot boundaries and parks. The plots also tend to come with ready water and power connection. For these additions, besides the land price, there are development charges.

Most developers provide a dedicated play area for children, swimming pool, gymnasium and a small clubhouse, says Surendra Hiranandani, CMD, House of Hiranandani, a property developer. In case of larger projects, there may be a provision for gardens and paved walkways.

In addition to property tax, you must also pay an annual maintenance fee for security and upkeep of the project, including gardens. The rates vary based on the amenities.

Plotted developments have been around for some time but buyer interest has perked up of late. There have been many plotted development launches, mainly in cities such as Chennai, Coimbatore and Bengaluru.

One reason for the jump in new offerings is the current state of the real estate industry. Developers are concentrating on completing existing projects to remain RERA-compliant, says Anuj Puri, Chairman - ANAROCK Property Consultants. He says that as new projects are on the backburner, existing land banks weigh heavily on some players’ balance sheets, and liquidity is an express requirement. So, there is interest in selling off plotted developments instead of building projects on such land.

Hiranandani adds that high rise developments take five to seven years in the far outskirts of the city to mature and for the project to break even. With high interest costs, most developers are unable to sustain such an investment, which is leading to a rise in plotted developments, he says.

Benefits for buyers

These projects offer a few advantages to the buyers, compared to buying any other plot of land. One, if one wants to buy for the long term, the land may be better secured from encroachments. Two, if you wish to construct, enablers such as water connection will help you complete faster. Three, some projects may also include other amenities such as shops or schools. These social infrastructure facilities are helpful if you want to move in.

Compared to buying an apartment, buying and building on a plot in a developed layout has merits. For one, the prices in such projects are more affordable compared to the residential properties in the central areas of the city, says Hiranandani. As connectivity improves, one can enjoy a good life-style at a more affordable price.

Risks to consider

As with any property, especially land investment, these have their share of risks. For one, these developments tend to be in the outskirts of the city. Hence, it may take time for the locality to mature for generating good returns on the land, cautions Hiranandani.

Puri warns that buyers should check the legality of the plot. Because of RERA, many fly-by-night developers need to exit the market and may be trying to sell off land which does not have all the appropriate clearances, he cautions.

Another risk factor to look out for is ensuring that the development stays clear of future infrastructure plans of the local municipality or city planning authorities. Puri says that buyers should be wary of plots near water bodies, since many cities, like Bengaluru, have come down heavily on developments which are within a certain distance of lakes.

With many new launches, it is also possible that the scarcity premium on such plots, which exists today, may come down over time. So if you buy today with the intention of selling a few years down the line for a fat sum, your gains may be limited.

Besides, it helps to deal only with credible developers who have proven track record in the sector, says Hiranandani.

This is because many promised features such as club houses may not be built; or the developer may sell portions of the land for commercial development such as hotels, impacting your lifestyle. These risks may be somewhat mitigated with RERA, as a plotted development requires a completion certificate that indicates infrastructure work is done and it conforms to the local rules.

The writer is co-founder, RaNa Investment Advisors

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