Buying a plot of land can be a rewarding purchase especially in the city struggling for space and where real estate value is soaring. But before you buy a plot of land, there are some vital or key factors to be considered to ensure that you are dealing with right seller and investing in plot approved by Town planning department or concerned authority. Following are some key points you need to consider before buying a plot
Key factors you must check before buying a plot
Buying or investing in plot is one of the difficult investment decisions for any investor. Before buying a plot of land, a number of checks need to be done to confirm that the land has a clear and marketable title.
Check whether the seller has a right over the property. The first step is to see the title deed of the land which you are going to buy. Confirm whether the land is in the name of the seller and that the full right to sell the land lies with only him and no other person. It is better to get the original deed examined by a lawyer.
Before buying plot of land, it is important to confirm that the land does not have any legal dues. It is available as a certificate called encumbrance certificate from the sub registrar office where the deed has been registered, stating that the said land does not have any legal dues and complaints.
Verify whether the layout has been approved by the City Development Corporation and the local body.
Be sure to research any contingencies, which may hinder the development of the property. Determine if the plot of land has the necessary infrastructure to build your home. There should also be a deeded right-of-way, allowing the right to build a public road or accessibility to the land.
Ensure that planning permission and building approval has been obtained from City Development Corporation from the local body concerned.
Check whether the abutting or neighboring road of the plot has been maintained by the local body or has been handed over to the local body.
Verify the land-use zone as per master plan for the plot.
Loan for Buying Plot
Banks and financial institutes offer “Land Loan” or “Land Purchase loan”. A land loan is a financing option that is meant to be used just for the purchase of land. These loans are available for purchasing land for both construction and investment purposes. The quantum of loan sanctioned, depends on a number of factors like the cost of house/flat, person’s age while applying for loan, income, repayment capacity etc. However, any individual aged 21 years or above having regular income is generally eligible to apply for land loan.
Banks usually insist that the land you are buying, whether it is for your house or for commercial purpose, should be from a development authority or from a society, implying that it should be legally safe land. Even if banks were willing to provide a loan for a plot of land, it may come at a higher cost and not at the home loan cost which is considerably cheaper than a plot loan. One thing that you must remember is that there are no tax sops if you take a loan to buy a plot of land. Normally, lenders will not finance more than 60-70 per cent of the total cost of the plot and the remaining has to come from your sources.
If you build a house on that plot of land, you will be eligible for both Land loan and Home construction loan. Land loan enables you to buy plot of land and Home construction loan enables you to construct the home in the plot you purchased.
Tax benefits on a Land Loan
A home loan attracts a significant amount of saving from income tax. But there are no tax benefits on a loan taken to acquire a plot of land. Therefore, a home loan brings a significant tax incentive for the borrowers, especially for those in the high taxable bracket. There are no tax benefits for purchase of plot of land. But if you are buying a plot for construction purpose you can get a tax sop on loan. In such a case, the total amount will be combined i.e, loan for purchasing a plot and loan for construction of house or villa is combined and you will get the tax benefit on the entire amount.
The tax deductions will be applicable only in the year in which the construction is completed. In that year interest on land loan as well as the construction loan till the end of the previous year shall be taken together and one-fifth of this cumulative interest plus the interest payable for the specific year will be eligible for deduction. The principal repayment you make on your home loan is also eligible for income deduction under Section 80C.
Key factors you must check before buying a plot
Buying or investing in plot is one of the difficult investment decisions for any investor. Before buying a plot of land, a number of checks need to be done to confirm that the land has a clear and marketable title.
Check whether the seller has a right over the property. The first step is to see the title deed of the land which you are going to buy. Confirm whether the land is in the name of the seller and that the full right to sell the land lies with only him and no other person. It is better to get the original deed examined by a lawyer.
Before buying plot of land, it is important to confirm that the land does not have any legal dues. It is available as a certificate called encumbrance certificate from the sub registrar office where the deed has been registered, stating that the said land does not have any legal dues and complaints.
Verify whether the layout has been approved by the City Development Corporation and the local body.
Be sure to research any contingencies, which may hinder the development of the property. Determine if the plot of land has the necessary infrastructure to build your home. There should also be a deeded right-of-way, allowing the right to build a public road or accessibility to the land.
Ensure that planning permission and building approval has been obtained from City Development Corporation from the local body concerned.
Check whether the abutting or neighboring road of the plot has been maintained by the local body or has been handed over to the local body.
Verify the land-use zone as per master plan for the plot.
Loan for Buying Plot
Banks and financial institutes offer “Land Loan” or “Land Purchase loan”. A land loan is a financing option that is meant to be used just for the purchase of land. These loans are available for purchasing land for both construction and investment purposes. The quantum of loan sanctioned, depends on a number of factors like the cost of house/flat, person’s age while applying for loan, income, repayment capacity etc. However, any individual aged 21 years or above having regular income is generally eligible to apply for land loan.
Banks usually insist that the land you are buying, whether it is for your house or for commercial purpose, should be from a development authority or from a society, implying that it should be legally safe land. Even if banks were willing to provide a loan for a plot of land, it may come at a higher cost and not at the home loan cost which is considerably cheaper than a plot loan. One thing that you must remember is that there are no tax sops if you take a loan to buy a plot of land. Normally, lenders will not finance more than 60-70 per cent of the total cost of the plot and the remaining has to come from your sources.
If you build a house on that plot of land, you will be eligible for both Land loan and Home construction loan. Land loan enables you to buy plot of land and Home construction loan enables you to construct the home in the plot you purchased.
Tax benefits on a Land Loan
A home loan attracts a significant amount of saving from income tax. But there are no tax benefits on a loan taken to acquire a plot of land. Therefore, a home loan brings a significant tax incentive for the borrowers, especially for those in the high taxable bracket. There are no tax benefits for purchase of plot of land. But if you are buying a plot for construction purpose you can get a tax sop on loan. In such a case, the total amount will be combined i.e, loan for purchasing a plot and loan for construction of house or villa is combined and you will get the tax benefit on the entire amount.
The tax deductions will be applicable only in the year in which the construction is completed. In that year interest on land loan as well as the construction loan till the end of the previous year shall be taken together and one-fifth of this cumulative interest plus the interest payable for the specific year will be eligible for deduction. The principal repayment you make on your home loan is also eligible for income deduction under Section 80C.
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