Municipal Lands Investment

E-mail Print PDF


Investment in land is an option that has been around for centuries. In the good old days, people fought for land as they associated value with it. The trend continues. Then, it was the cultivability of land that gave it the value. Now, it is the proximity to amenities and employment that gives this real estate its value. Lands can also be farms or other vacant tracts. It can be held alone or along with partners or family members.


Advantages of investing in land:
.

  1. Unlike investments in currency, gold, bullion and other commodities, it cannot be stolen easily.
  2. It is not a risky investment like shares and bonds.
  3. It can be mortgaged more than once to raise some funds for emergencies
  4. It does not lose value over a period like the money in banks which fails to keep pace with inflation
  5. It records consistent appreciation, which can be realized after a long period of time. The appreciation works at rate, which is generally much higher than inflation, and bank interest rates.
  6. More often than not, such investments are in vast open lands that may not have much value as of now, but will give dividends in about 1 to 3 years hence.
  7. It provides a means of tax planning. If the money is invested in land for appreciation, the investor becomes liable to tax only if he sells the property. If he chooses to hold the property for 20 years, he pays no tax on annual or biannual capital appreciation till the date he sells the property. Effectively, such capital appreciation gets compounded without deducting tax component. Had the investor opted to invest in some bank deposit, the interest earned thereon would be taxable.
  8. Land can be leased to generate some annual incomes

Disadvantages of investment in land.

  1. It is not as liquid as cash. Therefore, if any emergency arises, the estimated land price may not be received, as the buyer would be in a better position to negotiate.
  2. Sometimes, when the land prices start spurting, unsocial elements come for grabbing the land. They may resort to coercing the owner to sell or not giving owner the access to his property. At such times, the owner may have to lose his entire investment or opt to seek court's help in resolving the issues.
  3. Capital gains tax on accumulated appreciation can be substantial.
  4. Government may form policies that change the land use. Such change in land use may make the investment lose its value. Government may also acquire the property or part thereof for some general good, like road widening. Price paid by the government for such acquisition is generally much below the market rate.
  5. It is a long-term investment. So the owner simply has to wait till he gets the value he is seeking. The value will not come at some regular intervals. It may mean stagnation of values for almost 20 odd years before starting the spurt. It becomes necessary to know when to buy and when to sell in such a market. And it needs a lot of patience to play in this market.
  6. Unlike shares, gold, and other assets, mere purchase of asset is not adequate to give clear title. Antecedents of the property need to be traced to ensure that nobody's rights have been infringed and approvals from government and other authorities are in order. Failure to do so may deprive the purchaser of the property because of law maxim "let the buyer beware".


Where to invest
.

Having decided to invest in land, the next question that comes into mind is where to invest.


1. First a decision needs to be taken about the budget. If the budget is large, buying some prime property in the heart of a major metropolis will be rewarding in a short time, if the market is on upswing.

2. If, however, the budget were small, then investment in some lands on the outskirts of the city would be worthwhile.

3. In addition, investment in second and third tier cities yield handsome profits over a period of 10 odd years, because the lands in these cities can be acquired cheaply. Therefore, contemporary structures can be added at right places more easily.

4. Sometimes, the government announces some projects and proposals. If such projects are likely to generate employment, the prices of land in the region will start climbing. Similarly, if any corporate house acquires large tracts of property for its expansion, then the possibility of capital appreciation of the properties in the vicinity improve considerably.

5. New Airports, and railway stations help the surrounding areas gain in value.

It is, therefore, necessary to be aware of the latest developments that are being announced, before taking a decision to invest.


Tips on Land investment
.

Don't believe the media too much.

 

 

LiveZone Vietnam Consulting and Investment JSC