Safe Investment Begins with Land: What Makes it Recession-Proof?

For an investor, a stock market crash could be the worst nightmare. But it is only one of the many perils that trouble an investment portfolio. Inflation can rise sharply for years, the government’s interest rate policy can challenge even safe investments, and geopolitics can put a dent in your portfolio.

Amidst all of this, the long-term economy continues to grow. In India, as does the population. As a result, demand for residences, commercial spaces, farmlands and holiday homes never ceases. Out of all of this, land emerges as a long-term investment that protects wealth for generations. A look back also points out that land is one of the few recession-proof investments and, therefore, a certainty in portfolios.

Withstanding Recession

If we look back at the sensitivity of land prices during various downturns, there are quite a few positive indicators worth noting.

• The 2008 Recession - It was only residential land demand that witnessed a correction in Delhi NCR and Mumbai. However, contradictory trends in Bengaluru prevailed while it was stable in many places in Hyderabad and Chennai. Land prices in Bengaluru, for instance, fell by 5-15%. This was acceptable, considering the Sensex had dropped from over 20,000 in late 2007 to less than 9,000 in early 2009.

• COVID-19 Period - Just like in 2008, Sensex fell from more than 41,000 to less than 30,000 as the pandemic crept in. However, land demand relies on other factors, such as infrastructure development and developer interest. Yamuna Expressway, for instance, saw large-scale infrastructure investment. This kept the land prices afloat despite the pandemic lull. The average land prices there actually increased from 1200/sqft to 1250/sqft. Elsewhere, an appreciation of 21-29% in average plot prices was seen in many localities in Hyderabad between 2019 and 2022. Bengaluru, Chennai, Pune, Kolkata, Mumbai, and Delhi also saw appreciation in land prices between 2020 and 2022.

How Land Pulls It Off?

The primary reason for land’s comparative immunity towards recession is its limited correlation and exposure to market forces. Another reason is that its demand is dictated by factors that can deflect the recession risk. Let’s understand them further –

• Fixed Supply – Land supply cannot be increased, and its value increases with the pace of urbanisation and industrialisation.
• Inherent Value – Irrespective of market conditions, land has an inherent value. This is because of its utility in fulfilling agricultural, commercial and residential needs.
• Perennial Need – This market has buyers who need to buy irrespective of market conditions. They could be NRIs, developers, government or simply someone who has retired and wants to settle down in a new plot.
• Growth Sensitivity – Land prices are highly sensitive to growth and infrastructural developments in the region. NCR and Navi Mumbai are examples of places where land prices skyrocketed due to infrastructural developments. On the other hand, trends such as spiritual tourism have influenced land demand in some cities. Colliers India has identified Amritsar, Ayodhya, Dwarka, Puri Tirupati, Shirdi, etc., in this category.

Thanks to these ever-present attributes, land is the leading performer even within the real estate segment. This is evident in examples like the comparative growth of apartment and land prices in Yamuna Expressway between 2019 and 2024.

This is largely because of reasons such as –

• Land doesn’t undergo any structural depreciation, unlike built real estate properties
• Built properties involve maintenance costs, such as repairs and society charges, whereas there is scarcely any maintenance cost associated with land
• Oversupply can affect the liquidity of built properties, a factor which is unlikely in the case of land
• Land has a strong emotional demand among Indians, while the demand for built properties is mostly utility-based

Diversify Into Land

Land serves as a safe investment for HNIs as well as long-term investors. Its low correlation to stock market fluctuations makes it a recession-proof investment. Its dependencies, such as local development, demographic shifts, and infrastructure projects, are easy to monitor for investors. A long-term investment in land sufficiently reduces the perils of a panic sale and delivers solid returns, even after a series of turbulent economic cycles.