The preferred and in most of the cases the only mode of owning a house till 1980s, plotted developments, has made a dramatic turnaround in recent times. Post Covid, it seems there have been more or less the equal number of launches with plotted developments along with the apartment projects.
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Plotted developments have also been witness to a facelift in recent times. Our fathers and grandfathers used to buy a piece of land, often at the fag end of their careers, and built houses over there. The modern plotted developments by some of the leading developers are within the society complexes and are swanky as well as loaded with all the amenities and luxuries. They are more often than not part of the big projects where lifestyle features are loaded like any other apartment project.
There are broadly five reasons why plotted developments are getting traction post Covid:
Need for open spaces: Post Covid Indians have realized the need for bigger spaces and, more importantly, open spaces. Naturally plotted houses have more open & breathable spaces, compared to an apartment.
Sales strategy: In many micro markets of India, there is an over-supply of mass housing. In the market of demand & supply mismatch, it is not a prudent strategy to launch fresh housing units. Developers over there are hence tweaking with the sales strategy and offering the plotted developments.
Land bank: Some of the developers are sitting over huge land bank. In this pipeline visibility with more than a decade of land bank at disposal, it makes better sense to exhaust the land parcels with plotted developments than to bear the holding cost of the land in the kitty.
Peripheral locations: The metro cities are getting saturated and in many of the cities the infrastructure, both social & economic, along the peripheral locations has been shaping up quite decent. There are enough land parcels available in these peripheral locations. Naturally these locations are hotspots for plotted developments and townships.
Tier II cities: Some of the Tier II cities, especially the ones along the various industrial corridors, are shaping out as the new property hotspots. The developers want to reach out to these cities to reap the first movers’ advantage. However, the mindset and the cultural context in these cities are that of plotted developments than apartment culture.
Pros of investing in plotted developments:
More freedom: A home buyer naturally has more freedom with a plotted house, compared to an apartment. One is literally having a roof over the head and can enjoy the life at house without any external, society norms for instance, interference.
Flexible use: We all want an office at home, more so after the Covid. But apartments in general neither have that sort of design element nor extra space for the same. A plotted house provides that much-needed flexible use of the house.
Better ROI: A plotted house generally has higher resale value, compared to an apartment. This is because the main component of the house, land, keeps appreciating way faster than any shared apartment complexes.
Delay proof: Though some of the developers are also providing the constructed plotted houses, by and large the developers do offer the plot along with infrastructure and amenities. Thus, a plotted house is generally seen to be delay proof in acquisition.
Cons of investing in plotted developments:
Land title: The biggest challenge in buying a plot is the land title. Since the land titles in most of the cities are not digitized, it is cumbersome to get to know the credentials of the land title and how many hands it has changed over the years. There have been cases of disputes by one or the other of its past owners.
Associated risks: In cases of buying a standalone plot, a buyer has the additional challenge to verify the master plan of the area and threats of land acquisition, if any, for future infrastructure projects over there.
Higher investment: Compared to an apartment, investment in plots need higher investment. Land is the most precious commodity in India and one needs to shell out far more budget to acquire a piece of land.
More disputes: A plot, especially when not purchased within the gated society, has far greater chances of disputes and litigations. There have been instances of encroachment upon the land as well, when the plot is kept unutilized. Litigations borne out of neighboring boundaries are also pretty common in India.
More illiquid: A plot is far more illiquid asset class than an apartment. Reasons could be anything, ranging from the higher ticket size to general preferences of living within bigger communities. But it takes more time to sell a plotted house than an apartment.
Financing: It is much easier to get a loan for an apartment than to get a plot being financed. Many of the banks simply don’t finance the piece of land. Even at banks and financial institutions that provide a land finance, the norms are far more strict than an apartment. A plot finance is generally costlier than an apartment finance.
Tax disincentive: Unlike an apartment purchase, there is no tax deduction available for plot purchase. A buyer can only avail tax deductions on a loan taken for constructing a house on that plot. The tax deductions on constructing a house are anyway applicable only after the construction is complete.
Precautions in buying a plot:
- One should do a thorough due diligence with the land title and its original ownership
- If the plot is being bought for residential purpose, one should check the land use policy of the zone and whether government approvals/ permissions are feasible on that piece of land
- If the land use is agricultural, and the buyer is buying it for residential purposes, one must check the CLU (Conversion of Land Use) policy of the area
- A buyer must check the availability of basic utilities, like the water & electricity, before buying a plot for residential purposes
- One must also check the land’s annual property tax obligations before making a purchase decision
(By Vikas Wadhawan, Group CFO, Housing.com, Makaan.com and Proptiger.com)