INVEST IN LAND – WHYs & WHEREFORES

 “Buy land, they are not making it anymore” – Mark Twain had famously remarked once.  The romantic dalliance of the Indian investor community in the last two years has been a roller coaster ride. Everyone has seen extreme troughs n crests, primarily owing to impractical valuations in all the categories, be it Gold, stock markets or Real estate. The investment opportunities in land weren’t explored factually since there were many a myths about land. In the words of Ruchika Bhardwaj, an analyst with Certes Realty Ltd – “In the last one year, Land has had a soft fall compared to the loud thud in the other product categories”. The essence of this article is to critically dispel the myths surrounding land and evaluate the opportunities of investment.

Myth 1 – Land is a scarce commodity  

Most hoarding or reckless buying of land happens on the presumption that land is a scarce commodity and that it should be bought yesterday. In the Indian context, it is pertinent for the buyer to understand on “why” a certain land is attractive. Our recommendation always hinges on two factors – “demand for finished products on a 5 year horizon” and “Intent & ability for infrastructure development”.

Myth 2 – You need to have Deep pockets

Many an investors misunderstand that land investments entail a whole lot of capital, whereas fact remain that one can invest at varying ticket sizes. The same amount of capital can buy more land, if one can get expert assistance and identify opportunities for growing the money in well researched places.

Myth 3 – land is Land. What’s so specialized?

Anything, and everything related to real estate has a land connect. People generalize land as one asset class. However, there are @ least 20 kinds of land, which can be put to varying uses, and varying yield/ returns. For example, anything from race course, amusement parks, warehouses, commercial, residential, gold courses, resorts, exotic farming etc. can be created on land, but the price of each one of them would be different.

Myth 4 – Price of Land increases gradually.

Limited short terms returns In our opinion, since there aren’t many organized advisory firms specializing in the land business, the one eyed end up criticizing the product, rather than expose their limited abilities. Hence, the myth that land doesn’t yield desired returns in the short term. If invested into the right land, at the right time, at the right price, Land yields are the highest within the Real estate products.

Myth 5 – Instinct and hearsay is enough expertise for land

It is indeed the most misunderstood concept where investors, builders etc. use their common sense approach to identify land assets, rather than engage experts at the ground level to assist them in the endeavour. In the process, there are not enough success stories, especially for the small investor. Land should be bought through someone who understands the local level nuances like area, topography, social and physical infrastructure etc.

Myth 6 – Land is always sold, not bought

 The common practice is to have a “reactive”, rather than “Proactive” approach towards buying land. Most investors look at land assets when someone proposes, rather than make it an ongoing exercise to continually identify assets which would yield the highest returns. Our advice remain not to be restrictive, and choose from 3 options, but to widen the search from macro to micro analysis of opportunities.

We compare land and the other realty assets on three key parameters of Risk exposure, Liquidity terms and ROI terms.

It would be a good idea to share the seven reasons why we feel that investing in land is the best option within real estate compared to the much more “touted & publicised options” of built up spaces in buildings.

Reason # 01       Land is an evergreen, ever-growing asset. Brick & mortar assets like buildings (mall space / office blocks) deteriorate with time, whereas LAND DOES APPRECIATE, with time. Remember, some studies confirm that the value of any commercial building becomes ‘Zero’ in 27 years. Even when the building is useless & demolished, what is left behind is LAND.

 Reason # 02       Land is an asset from day one. It has very little lead time to mature from purchase to progress. For e.g. If you are an early bird buyer for a residential or commercial property, it typically takes 3-5 years for your asset to be registered in your name, and to draw returns from them. One keeps investing money & time for 3-5 years, without returns. Land can be put to interim use to deliver returns.

Reason # 03        Land is one asset which affords the most flexible options, within the real estate products. You can choose to buy any size & dimension, any value, anytime. Besides, land can be put to multiple uses during the period of ownership. Let me elaborate. Agricultural land if invested into; can be used for farming. Post zoning, land use can be changed and commercially used. Anything build on it can be redeveloped, for e.g. the same piece of land could end up being used as warehouse premise, commercial, residential, etc. etc.

Reason # 04       Land affords simple investment management. Once bought, it doesn’t incur high costs compared to built-up products. It is most likely that the land bought is self sufficient in deriving the maintenance cost, whereas, the other products attract a continually incremental maintenance.

Reason # 05      If we analyze the supply Vs demand for real estate products in our country, land as a commodity would remain in demand for the next couple of decades. There is an acute demand for finished products, which would have to be constructed on LAND. Hence, investments in LAND are bound to grow, provided the buying strategy is right. For e.g: Delhi as a city state is forecasted to grow from 136 lakhs to 240 lakhs of population in the next decade. That necessitates almost another few thousands of hectares to be brought under development. Hence, invest in land today, rather than wait for appreciation at a much later date; at much lower returns.

2 comments

  • Hello Ramesh.very nice article indeed.since I am also based in Delhi, let us catch up towards the end of the week. I need some assistance from you on some land deal in delhi master plan and need guidance.

  • Hi Ramesh,
    Very well articulated. I work for XXX advisors (P) Ltd. Can you please call me on 98100-XXXXX for some advise. I have a couple of clients who would like to engage your expertise.

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