Exploring the Potential of Land Investment in India

The Indian real estate sector provides a wide range of investment opportunities to prospective buyers, ranging from residential, industrial, and commercial properties to the rawest form of property available - land. Land investment in India can be quite profitable over the long term since you can monetize this precious asset in diverse ways. It is low-maintenance, less susceptible to market fluctuations, can appreciate substantially in the future, and requires a low initial investment.

In this blog, we'll be delving deep into everything you need to know about the timeless phenomenon of land investments in real estate:

Introduction

Although real estate in and of itself is one of the most favored investment options for wealth building, land has stood out as the top choice of property type for most investors in the country. In terms of real estate, land refers to a plot of completely undeveloped plain land which is let out for sale in the market. Land investment in India has always been popular due to its tangibility and versatile scope of usage compared to other properties, and enduring ability to churn out great returns on your capital.

Land has become coveted as a property because of its scarcity, making it a distinctive addition to your investment portfolio capable of generating high ROI with the least risk. Strategic land investments can help you reap exceptional returns, but only if you do it with a clear idea of your buying intent and future goals. Therefore, at K. Raheja Realty Group, we believe it is crucial to consider factors like the plot's location and the development of the surrounding infrastructure. In addition, a well-thought-out market entry-exit timeline is the key to a successful land investment strategy.

The Landscape of Land Investment

There are two major types of land - freehold and leasehold. In almost any nation, including India, the most available land for sale belongs to the former category. In the case of freehold land, the investor must obtain approval for the type of property (residential or commercial) they plan on constructing. If the approval is for residential use, you can build a house or a multi-storey apartment building on the plot. On the other hand, if the approval is for commercial use, you can develop a commercial structure on it.

The second category is leasehold land, usually a massive area of government-owned land. The landowners could be the state government, the central government, or authorities like specific industries and corporations. These authorities may lease out the said land to prospective buyers prepared to take it for long tenures or extended periods spanning decades. However, the buyer is liable to use the plot only for the specific purpose as approved for a distinct property type.

Additionally, there are land zones specially dedicated to sectors like information technology, hospitality, healthcare and more. For instance, the land in a dedicated information technology zone will be strictly used to develop an IT knowledge park or hub. Such land investments are on the rise in India.

Then, there is agricultural land that provides billions of hectares for farming and growing produce - the primary contributor to our country's GDP. In some instances, the landowners may convert their agricultural land to non-agricultural use, provided there are requisite approvals and strict adherence to land use regulations prescribed by the local authorities.

Apart from the above, other types of land in India include industrial lands catering to the manufacturing sector, SEZs (Special Economic Zones) for facilitating trade, and eco-sensitive & reserved lands meant for environmental preservation.

Historical Trends and Success Stories

Land investment in India has a history of significant appreciation, implying that its value generally does not depreciate over time. Thus, land purchase is a stable and secure investment option for property buyers through the decades, with a greater propensity of inducing long-term success and profitability.

Land Appreciation Over the Years

Colliers' Advisory Services recently published a report titled 'Top Investment Corridors in India,' which says buying land and monetizing it through rentals yields ten times higher returns than those from ready homes. The time is ripe for investing in real estate, with twice the demand for land investments in serene, nature-friendly locations close to metro cities and across important tourism spots in the country post-pandemic.

The report adds that the land appreciation rate is much higher than a few years ago, among the varied positive factors influencing the investment sentiment in India's real estate market. Investors can hold the land long-term, build a structure on the plot, lease it out (for example, as a holiday home) and earn an excellent rental income.

According to the report, although the land investment market within the real estate sector is still at the nascent stages of development in a few corridors, corridors nearer to metro cities and tourism destinations have grown multifold and have witnessed a remarkable rise in investments due to the pandemic's impact. The idea of land investment in these places grew increasingly popular during the years since the lockdown and will continue to gain more and more traction in the coming months.

Case Studies of Successful Land Investments

Making investments in land a thundering success is all about the right timing. An old article on Business Today mentions one such investment that perfectly exemplifies this point:

A man from Chennai named Shyam Shekhar was looking for an opportunity to invest the surplus income earned from his family business circa 2005. He came across agricultural land for sale at INR 1 lakh per acre in Oragadam, a nondescript town 50 kilometers northwest of Chennai. However, the town's nearby areas had attracted big-ticket investments from major automobile companies, with industrial plots costing INR 18 to 20 lakhs per acre. In due course, Oragadam also started garnering increasing interest among prominent companies like Apollo Tyres, Renault-Nissan, etc.

Shekhar's family leveraged this factor and promptly bought five acres of land in Oragadam for INR 5 lakhs. While this happened in 2005, his investment became worth INR 5 crores by 2012, generating 93% compounded annualized returns. These incredible results were because the whole Sriperumbudur-Oragadam belt had transformed into a vast industrial hub during that period, where several companies were establishing their manufacturing bases.

Since two important townships were also coming up within the 5 km radius of Shekhar's land at that point, he had suggested that a pool of investors could consolidate their holdings and sell the land to real estate developers whenever the demand arose at a substantial profit. Thus, Shekhar's success story depicts the extraordinary outcome that a well-planned land investment in India could lead to.

Diverse Applications of Land Ownership

The majority of land in India caters to residential, commercial and industrial developments to fulfill the ever-growing demand among real estate investors for these asset classes. Therefore, as a potential land buyer, you must first understand the diverse applications of land ownership and be clear about your investment purpose before purchasing it.

Residential Developments

Independent buyers purchase residential land intending to build a house on it. Some may intend to reside in it themselves, whereas others may rent the space to tenants to earn a monthly income. Real estate developers buy residential land plots to develop new housing projects, offering flats or apartments for sale.

Commercial and Industrial Ventures

Similar to how developers purchase residential land for residential development purposes, the ones who are into commercial or industrial real estate buy land to develop relevant projects belonging to these categories, such as commercial buildings and complexes, factories, warehouses, etc. Instead of selling it off, they often lease the land to generate income more consistently.

Understanding the Potential

Land investment is one of the best kinds of investments in India, brimming with supreme potential. It is a real, high-demand asset whose value keeps increasing with time, and it is not as inconsistent as other investment modes. It is a less competitive venture, making it easier for new investors to enter the real estate market and improving their chances of getting a reasonably priced deal. It is less expensive than developed properties since the latter also involves additional overhead expenses in their total cost. The post-investment expenses are also meager since vacant land hardly requires maintenance and upkeep. Besides, land comes with the flexibility of choice, granting you multiple options as to what to do with your plot.

Factors Driving Land Appreciation

The value of land is its monetary worth or the esteem under which you hold it and can sell it in a given market situation. If the land gives high net returns over a while, it means that the value of that piece of land has appreciated, for which several factors are collectively responsible. Land value is commonly associated with the type of business and nature of services that the plot of land can serve as the means for. Other than that, the location of the land parcel, the demand and supply dynamics, connectivity, infrastructural growth, and population growth are additional factors.

Economic Growth and Urbanization

As the national economy grows, it amplifies the demand for real estate. Economic growth and an increase in urbanization go hand-in-hand, triggering a greater need for land, housing, commercial spaces, and infrastructure. Different socio-economic factors and the rising aspirations of the middle class compel them to migrate from rural to urban areas, which carry the promise of better opportunities. The demand created due to this rapid migration significantly impacts the value of land in India and its future appreciation.

Infrastructure Developments and Connectivity

Social infrastructure such as schools, colleges, hospitals, shopping malls, retail centers, entertainment venues, recreational facilities, and commercial hubs in the vicinity greatly influences the appreciation potential of the land. After all, these elements affect the overall quality of a consumer's lifestyle in the long haul. Suppose the area is well-connected to other regions by roadways or connectivity modes like the railway. In that case, it enhances its value further and motivates buyers to invest in the land.

Land as a Limited Resource and Its Impact

Since land is a finite asset, there is limited scope for land investment and ownership in India as opposed to owning apartments, which keep coming up for sale in the market continually, with several developers launching new high-rise residential projects at every turn. Due to its limited availability, the value of land can escalate enormously over a long-term period.

Scarcity and Increasing Demand

The demand-supply dynamics play a pivotal part in the appreciation of land in India. Cities have experienced significant demographic changes over the years, triggering not only a population rise but an increase in economic activities which explicitly impact the demand for land. However, while this demand remains unabated, the availability of land has seen a drastic plunge, especially in metro cities, which are abuzz with ongoing infrastructure projects. Besides, the expectation of high returns may even create a false shortage of land, shooting up its value. Prospective land investors are more likely to find land parcels on the fringes and outskirts of Tier-1 cities than on the mainland, although those are also depleting rapidly.

Future-Proofing Investments with Land

Land is likely to remain a relevant form of investment even if other old or new investment options come and go because it is a precious natural resource rather than something one can manufacture. It is primarily risk-free and has a high probability of inducing profit. Therefore, buying land in India is a solid way of future-proofing your investments.

K. Raheja Realty's Expertise in Land Investments

Land acquisition is a critical component that precedes any upcoming development, with the property value being directly proportional to the value of the land it stands on, which, as discussed earlier, relies on its location, infrastructure, connectivity, and transportation facilities, among other aspects.

At K. Raheja Realty, we strategically acquire land in the prime areas of a city for development, offering numerous locational benefits to property buyers. To understand this point, let us take one fine example: our residential project, 'Raheja Residency', is located on a suburban Mumbai plot in Dindoshi, Malad (East), near Film City Road. It is an affluent area comprising elite resident communities, surrounded by a robust social infrastructure and easy access to the western suburbs via the Mumbai Metro Line 7 (Red Line) and the city via the Western Express Highway (WEH).

K. Raheja Realty is one of the most renowned builders in India with a towering legacy of 67 years across multiple asset classes, featuring a fast-growing portfolio of trendsetting residential and commercial projects as well as hospitality and retail developments in the luxury segment. Our vision is customer-centric, to make every single moment at our properties exceptional and luxurious beyond imagination. Our project planning and execution signify our in-depth understanding of the industry and the wisdom of knowing what truly ticks contemporary property buyers and investors.

Technological Advancements in Land Investments

The real estate sector in India is coming under the growing influence of technological advancements, embracing much-needed operational changes through technology integration to enhance efficiency, streamline processes, improve customer experience, and pave the way for further innovation. This emergence of modern technology is also applicable to land investments, significantly impacting how investors buy, sell and manage their land.

Utilizing Technology for Informed Decision-Making

Strategic technology integration within real estate can pave the path for sustainable development and more innovations in the property sector, changing the face of land investments in India. Evolving cutting-edge technologies can enable land investors to make more thoughtful and informed decisions, saving costs while getting great returns.

Digital Tools for Land Assessment and Due Diligence

Nowadays, special digital tools are created particularly for simplifying the processes of land assessment and due diligence. These tools may help potential investors conduct the required due diligence and assess the risk of investing in a particular land parcel. This kind of technology can contribute to smarter risk mitigation and make room for responsible and sustainable land investments.

Sustainable Land Investments with K. Raheja Realty

K. Raheja Realty Group is deeply committed to sustainable development for the benefit of future generations. We do our bit for the cause by incorporating sustainability in all operations. From utilizing renewable energy sources and implementing green building practices and energy-efficient designs to reducing our carbon footprint, we are mindful of our role in conserving the environment. Our end goal through environmentally responsible land investments is to create sustainable developments with wholesome spaces that enrich lives.

Conclusion

The pros of land investment in India certainly outweigh the cons, for land is a flexible, low-risk, and low-maintenance property type with a less competitive market and high appreciation potential, increasing your probability of deriving exponential ROI. K. Raheja Realty is home to the most astute real estate experts who can efficiently guide your property investment journey. Get in touch with us right away and explore your options!

Additional Resources

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