Land Compare

Additional Useful Information

• Since real estate transactions involve large amounts of money and heavy legal compliance, they take a lot more time as compared to equity and debt investments to be completed.

• Investing in land can be subject to complex regulations and zoning laws, which can make it challenging to develop or use the land as intended.

• When it comes to land, ownership is usually classified as direct ownership. This means the investor has all the rights on the property for an indefinite period. However, if the land has been leased out, the owner may temporarily lose some rights to the lessee.

Returns *

• Land do not guarantee any returns. However, the probability of negative returns are medium.

• The returns from Land depend on the location of the land, type of land, economic growth, etc.

• Real Estate investments have relatively lower returns as compared to other investment options such as debt and equity. The rental income as well as any proceeds received from the sale of the property may not generate returns that are high.

• It is also to be noted that unlike debt and equity investments, real estate investments involve significant operating and maintenance costs. This further pushes the returns below those of debt and equity. These costs also depend on the lease arrangement that owners have with their tenants.

• Land tends to appreciate the most as compared to other real estate investments.

Risk Level

• Land is a high-risk investment.

• Real estate investments come with risks such as poor location risk, failure to pay rent by the tenant, and other issues. Land especially is subject to regulations by governments and banks.

• It is always worth doing thorough due diligence on any plot of land under consideration. Every plot comes with its own unique risks.

Liquidity

• Land investments are relatively illiquid as compared to debt and equity investments.

• Investors can decide to sell their investments at any given time, but there is no guarantee of a sale. This is because investors (buy side) will have unique requirements, which that plot of land may not be able to fulfill.

• Liquidity of land investments can vary depending on factors such as location, zoning regulations, and market conditions. In areas with high demand for land, such as growing cities or areas with limited available land, it may be easier to sell land quickly and at a higher price.

• The illiquidity constraint may also come into play because at any given time, not everyone will have funds ready to deploy into a real estate investment.   

Interesting Facts

• Land investments have the characteristics of both debt and equity investments. Like an equity investment, when an investor purchases land, the investor owns that property. In equity investments, investors own part of the company. When investors receive rental income, this is seen like interest income in debt or dividend income in equity.

• Land can be used as a collateral against a mortgage taken.

• Land investments are considered as a good hedge against inflation. This means that in an inflationary environment, as prices rise all around, real estate prices also generally increase in line with inflation.

• Land investments have a low correlation with equity and debt investments. This is why it is a good investment option for diversification.

Tax Implications

• Earings received from Land are taxable.

• When investors sell land, the difference between the Sale Amount and Purchase Amount is typically called “Capital Gain” or “Capital Loss” (if sale amount is lesser than the purchase amount).

• The tax that the investor must pay on Capital Gain is -
• Situation 1 – If the property is sold within 2 years of buying, the investor must pay tax on Short-Term Capital Gains (STCG). This short-term capital gain is added to the taxable income of the investor and tax is to be paid according to the tax slab.
• Situation 2– If the property is sold after 2 years of buying, the investor must pay tax on Long-Term Capital Gains. There is a new flexibility in calculating long-term capital gains (LTCG) tax on real estate. Investors have two tax options for property bought before July 23, 2024:
• New Regime: A 12.5% LTCG tax rate without indexation benefits.
• Old Regime: A 20% LTCG tax rate with indexation benefits.

• There is no tax in case of “Capital Loss”.

• Purchase of land can result in an investor getting tax benefit under section 80C of the income tax act. Any principal amount investors pay back on a loan used to purchase land, can be used to claim the standard deduction of ₹1,50,000 under section 80C.

• If investors take a home loan to buy a property, they can claim a tax deduction on the interest paid on the loan under Section 24 of the Income Tax Act. The deduction limit for the interest paid on home loans is up to ₹2,00,000 per financial year. This is applicable only after the house is built on the plot of land.

• It is to be noted that none of these tax benefits are applicable if the investor does not plan to build a home on that plot of land.

• Any rental income that investors receive from Real Estate investments is added to their taxable income and they need to pay tax according to their tax slab.

Where To Invest

• https://www.nobroker.in/residential-land-plots-for-sale-in-andheri_east_mumbai

• https://www.99acres.com/residential-land-in-mumbai-ffid