Investing in realty? Why plots work better than under-construction today

In the wake of a large number of housing projects getting stalled or facing long delays, both end-users and investors are today shying away from under-construction flats. It isn't just the development risk, but also the high transaction cost (12 per cent GST on under-construction property) that has been a deterrent. In such a scenario, both developers and buyers are increasingly veering towards plots and plotted developments.

What's on offer

Its a win-win for both developers and buyers. While developers are able to do brisk sales and generate the much needed revenue, buyers can avoid risk and go for a safe investment. Today, there are plenty of investment opportunities in plots at the pan-India level. According to Cushman & Wakefield, multiple township projects are available in NCR -- both Noida/Greater Noida and  Gurgaon -- especially on Golf Course Extension Road and Dwarka Eway, by well known regional and national players. Similarly in Bengaluru, Whitefield, Electronics City and Bellary Road offer good options. In other cities too, such options are available on the peripheries of the city and emerging growth corridors, such as parts of OMR in Chennai, western and eastern suburbs of Pune and extended areas such as Piranghal and Wagholi. In Hyderabad, areas in the northern and eastern parts of the city and some towards the south east, largely radially outwards from Gachibowli -- Kokapet, Kompally and Adibatla -- offer plotted developments.

In NCR's Karnal, Signature Global City on NH1, a 30-acre clean, green development, as part of Deen Dayal Awaas Yojana of the Haryana Government's Affordable Plotted Policy, is doing a brisk business. It is a low-rise development, with ground plus two floors, that offers offers villas on plot sizes of 80-150 metres. "The best part is there is lot of flexibility. One can buy floor-wise at just Rs 22 lakh per floor. Several senior citizens who have a fear of heights are buying in our project. Moreover our well- designed high quality villas in a pollution-free gated community are appealing to young ones also. We have already sold over 400 plotted properties out of 542," says Pradeep aggarwal, Chairman, Signature Global. In the south, prominent builders have come up with developed plots in gated communities and are doing a good business.

Godrej Properties has entered this segment with its Godrej Reserve project in Devanhalli, Bengaluru. Overlooking Nandi Hills, this 14 acres of green development in the upcoming corridor of north Bengaluru has two luxurious club houses and high street retail. With state-of-the-art infrastructure in this project, Godrej Properties has achieved record sale of plots ranging from 111 sq metreds to 297 sq metres, starting at about Rs 40 lakh. And enthused by the overwhelming response, the company is planning to launch similar projects in  other cities. Similarly, Embassy Group and Century Group in Bengaluru have achieved good sales in their projects offering developed plots. Today even rich investors are shying away from investing in luxury homes and are instead opting for this risk-free investment option that comes with better appreciation.

The pitfalls

Investment in plots, especially in developed ones in gated communities has many benefits (See box: 10 Benefits of Investing in Plots). Yet, buyers should also keep in mind the disadvantages. There is no immediate tax benefit on loan repayment. However, when one sells the plot, one can avail indexation benefit and pay tax on capital gains at the rate of 20 per cent, according to Sushil Mittal, Chairman, Association of Certified Realtors of India. It should also be borne in mind that banks do restricted financing to lower tenures and at higher rates of interest for buying plots. Moreover one needs to guard against flawed title and land encroachments and litigant-prone land. Says Haris Bin Murshid, VP Sales Skydeck Residency, "A lot of frauds happen where buyers are duped into buying government-owned land or plots under legal scrutiny." Another problem with plots is that in land, particularly if it is agricultural, there is cash dealing. Also, unlike constructed property, there are no regular returns in plots. Shishir Baijal, MD, Knight Frank India treats investment in land  as a risky and tricky. "One needs to physically ensure surrounding infra -- roads, power etc. Also, one may have to physically guard property if not in a gated community."

Choosing a project

That's why investment advisors suggest it is better to invest in developed plots in a gated community instead of standalone plots. They recommend investing in a plot pre-approved by a public or reputed private bank for risk-free investment. Talking about investment strategy, Manoj Gaur, MD, Gaur Group, says one should look out for township projects offering developed plots and choose a location that is well connected to highways and in close proximity to commercial centres. Haris Bin Murshid, VP Sales, Skydeck Residency says that one should make a choice after doing a complete analysis of one's financial capability and need as an individual. If you are mainly looking to invest for few years until you're ready to invest in a flat, a plot in a good location that will have good development prospects and whose value will appreciate in future would be a good idea. According to investment experts for high investment and faster appreciation, one should invest in metros.

But for lower investment and longer investment horizon, tier-II and III cities are a better bet.

Is this the right time to invest in plots? Anshul Jain, Country Head & MD, Cushman & Wakefield India,  explains that this largely depends on the purpose of investment and tenure of holding.

Nevertheless plots, especially the ones in gated communities, are good bet as they have not lost as much value as other real estate investment avenues. But Jain cautions that in the current environment, one should not go for speculative investments in order to make quick gains, but have a long-term focus instead. Gaur says that one should take the plunge now, as the demand for plotted developments or plots has been continuous and consistent. Pradeep Aggarwal, MD, Signature Global endorses Gaur. "Now is the right time to invest as prices have not increased for more than five years and the entry point is low. However, Knight Frank's Baijal advises to waiting till the market attains stability.

10 Benefits of Investing in Plots

  1. No hidden and maintenance costs
  2. No development risks of the kind in under-construction property
  3. Land is constantly in demand and its value keepsincreasing, whereas value of built-up property could go down over the years
  4. Land generally gives higher returns or at least equal returns though investment is lower than built-up property
  5. Investment in land is more liquid and holding costs are low, with just annual property tax
  6. The transaction cost is lower compared to constructed property
  7. Plots appreciate faster in value, often at the point of purchasing
  8. Developer can quickly set up trunk infra, offer faster possession compared to constructed property. Moreover, one can customise home, based on one's need and budget
  9. A flexible investment option in terms of size and price
  10. Can serve as collateral for business loans

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