How to Start Investing in Land in India: A First-Time Buyer's Guide

While buying a plot of land for the first time in India, most people follow a similar approach. They search for a relatively affordable piece of land and keep hearing that prices of nearby plots are going up. And then they look at the token amount to be paid to book a plot. And then the endless paperwork. By the time one realises the importance of all that paperwork, it’s too late. This aims to guide a first-time buyer on how to approach buying a plot of land in India.

Land may appreciate over the long term, but returns are not guaranteed. This also helps to diversify your portfolio of financial instruments, which, besides stocks, gold and real estate, often consists of savings accounts. In this guide, we first explain why you would like to buy a piece of land, and after that, explain step by step how to buy land and what you have to look out for before you finalise the purchase.

Before You Start Investing in Land in India: Set a Goal and a Budget

Whether you want appreciation in value over 8–10 years, a plot to build on later or land for small-scale commercial use, your goal will influence the location and type of land you choose.

Calculate the total amount of money you need to spend to purchase a plot. The starting point would be the quoted price per square yard, but you also have to add stamp duty, registration charges, etc., to the quoted price. Also, the cost of building a house on the plot (fencing, levelling, road access to the plot, etc., and connections to utilities, etc.) would be over and above the purchase price, and you should have some money to spend on unknown expenses rather than spending the last rupee on the purchase of the plot.

Don’t assume you can get a plot purchase financed in a similar manner to a home loan. While some plots may be eligible for finance through banks, the loan-to-value ratio and interest rates may be lower than those for a home loan. Furthermore, financing agricultural land is even more restrictive, and it is best to check with your bank before you start looking for a property to see how much they are willing to lend you.

Choosing the Right Location and Land Type

A region labelled “developing” does not necessarily mean a plot of land is worthwhile to purchase. Be sure to check out the planned infrastructure for the surrounding area, and fact-check the information provided to you. Check if there are any highways, metro extensions, airports or industrial corridors in the works. Find out whether the proposed project has been approved and whether there is any allocated funding for the project. Simply referring to the broker’s brochure is not sufficient to verify any of the above information.

In addition, check the City Development Plan for the specific plot you are purchasing. This will detail the proposed use of surrounding land, roads, parks and other reserved areas, as well as any areas zoned for industrial use. This needs to be checked against the official Planning Authority map to establish whether the plot is affected by proposed development.

Looking at the type of land is also important. For building a house, you will want to look for a residential plot in an approved scheme. For business use, you will want to look for a commercial plot, but be warned that prices for these can be higher than residential plots and the zoning restrictions can vary from place to place. Agricultural plots can cost less than other types, but converting them for use as a house or for commercial use can be difficult and require planning permission. Some states even have restrictions on who can buy agricultural land, so don’t assume that conversion will be easy to get.

Direct Ownership vs Alternative Investment Models

When investing in real estate directly, the sale deed will typically transfer ownership of the property to your name. You will then be responsible for managing all the responsibilities of a property owner, including the tax and document requirements. Initial investment in real estate typically requires a lot of capital, and it may take a lot of time to find a buyer for your property later.

However, if you are looking for alternative investment options in real estate with less initial investment, it is essential that you carefully understand the arrangements, including ownership, charges, etc., returns and exit terms.

The structure of a fractional ownership arrangement and the charges involved need to be clearly laid out. Also, look into the terms of SIP-based land investment products, including what would happen on a missed payment and the exact time frame for transfer of title.

It’s even more important to carefully examine the legal rights attached to a token and its ownership structure, as well as the platform that manages the investment, including all exit possibilities. For now, tokenised real estate is not yet settled in India and thus should be carefully scrutinised by a first-time buyer. The easiest thing to verify for a first-time buyer is a direct freehold in an approved layout.

Legal Due Diligence Checklist

Verify all legal requirements to purchase a property before paying a token amount. Verifying the seller’s representations is also best left to your own property lawyer and not to the seller’s. It is here that most land disputes are either prevented or created.

Seller identity. Verify the identity of the seller against documents such as a passport and voter ID card. Verify whether all co-owners are selling in the case of joint owners. Verify whether a Power of Attorney executed in favour of the seller is valid and authorises the seller to sell the property.

Title search. Ask for the mother deed and check all transfers down the line from the original owner of the land to the seller. Check each link for any missing documents or obvious errors. A recently executed sale deed by itself does not establish a clear title.

Encumbrance Certificate (EC): Get the EC from the Sub-Registrar’s Office of the district where the property is situated. Check if there are any registered mortgages or charges, etc. Use a search period that goes back far enough to cover the title history you're reviewing.

Zoning and CLU: Verify the Master Plan/zoning classification of the land from the relevant planning authority. Verify the actual Change of Land Use (CLU) approval if the land was converted from agricultural to residential or other use, as claimed by the seller. Check the terms and conditions of the approval.

RERA Registration Certificate: Check if the development has been registered under RERA by searching the registration certificate number on the relevant state’s RERA portal. If buying from a developer such as HOABL, check the project's RERA registration details, where registration is required, and verify them independently.

Revenue records. Check the state’s land records and the mutation entries in the revenue records (e.g. Patta, 7/12 extract). Verify the name, survey number and area in the sale agreement and other related documents against the information in the records. Any discrepancies need to be explained and clarified before payment.

The documents required vary by state; your lawyer can advise on the exact documents to inspect for the sale of a plot. It is also important to identify whether there are any court cases against the land or the seller(s), as litigation is not revealed in an Encumbrance Certificate search.

Physical Verification and Site Assessment

Never purchase land by only seeing photos. Take all documents relating to the land with you to the site and cross-check the survey number with the boundaries as shown on the documents. Check if the access road as shown on plans actually exists. Look for any encroachment, fencing disputes or even someone cultivating or residing on the land. Check for proximity to electricity and water lines, drainage and any signs of flooding, such as water marks on walls or a low-lying area of land. Go once in dry weather and try to go back after rains if possible.

Have a licensed surveyor demarcate all the boundaries and speak to your neighbours as well as the panchayat or ward office to find out about any disputes unknown to the buyer, as these would not be reflected in any of the documents.

Agreement to Sale, Registration and Mutation

After you have done your due diligence, the next thing to get is an Agreement to Sell. This document will outline the terms and conditions that you have agreed to, including the selling price, token amount, payment schedule for instalments, time frames and more. It is best to have your Agreement to Sell reviewed by a lawyer. Also, remember to pay by bank transfer and keep proof of payment.

The sale is then finalised through a registered Sale Deed, which is executed at the sub-registrar’s office in the presence of required witnesses. You will have to pay the applicable stamp duty and registration charges as notified by the state from time to time and available on the website of the State Registration Department.

When a property is registered in your name, it is also necessary to file an application for mutation or Dakhil Kharij, so that the relevant revenue records are updated to show your name. Failure to have a property mutated can make future transactions with respect to the property, including sale, raising of a loan, payment of property tax, etc., problematic.

Taxes and Additional Costs

After purchasing the property, you may also need to pay ongoing property taxes and other applicable charges. Stamp duty and registration charges are generally part of the initial purchase costs.

In addition to the above-mentioned costs to buy a property, you also need to factor in costs associated with the sale. Brokerage, solicitors’ commission, advertising and other eligible costs incurred to transfer a property may be deducted when calculating capital gains, subject to applicable tax rules.

If you sell, remember to factor in capital gains tax (CGT) before listing your property for sale. Land and buildings are generally treated as long-term capital assets when held for more than 24 months. The rules for indexation have changed, and a grandfathering provision may apply to land or buildings acquired before 23 July 2024 by resident individuals and HUFs, subject to the applicable conditions. Qualifying rural agricultural land is generally excluded from the definition of a capital asset and is not subject to capital gains tax, whereas urban agricultural land may be taxable.

It’s wise to get your capital gain calculated by your CA before marketing your property. You’ll need to supply your CA with a copy of the purchase deed, all of the purchase costs, details of any capital improvements which qualify for inclusion, and details of all the costs incurred in respect of the sale. Note that brokerage, commission and other legal or transfer costs may be deducted from the capital gain. Also note whether any grandfathering or reinvestment exemption applies to your case.

Keep these selling costs in mind:

• Brokerage or commission
• Legal and documentation fees
• Advertising or agent charges, if applicable
• Other transfer-related expenses that may qualify for deduction

Make sure you keep receipts for the payment of all these expenses, as they will have to be included when calculating your capital gain.

After You Buy

Even after you have acquired land, do not abandon it. Mark the borders with a fence or with boundary stones. Put up a signboard with a notation of ownership. Periodically visit your plots of land in order to find out what is going on with them and to be able to catch encroachment early.

Pay property tax on time and keep receipts with other documents. It is also a good idea to follow updates to the local development plan from time to time, as new roads or changes in land use, for example, can influence the future value of your plot as well as its use.

Later, when your investment has increased, you can distribute your money over more plots or even other assets. Investors build up their property holdings gradually, as and when their finances allow.

Special Considerations for NRIs and Foreign Buyers

Non-Resident Indians (NRIs) and Overseas Citizens of India (OCI) cardholders can generally purchase residential/commercial properties, including plots, in India. The payment needs to be made by them through their permitted banking channels in India, like their NRE/NRO/FCNR accounts or by means of inward remittance. However, certain exceptions, like agricultural land/plantation properties/farmhouses, etc., cannot be purchased by them through the normal route.

In addition to these rules, there are restrictions on taking sale proceeds out of India, which are subject to conditions and ceilings as specified by the RBI from time to time under foreign exchange regulations. Furthermore, a seller may be liable to have tax deducted at source from the sale proceeds. A foreign citizen residing abroad who is not an OCI cardholder generally cannot acquire immovable property in India except in specific permitted circumstances, such as certain inheritance cases. The applicable restrictions should be checked against current RBI/FEMA regulations.

First-Time Buyer Checklist for Land Investment in India

• Investment goal set and total budget allocated, including taxes, fees and a cushion fund
• Site location and infrastructure details ascertained from reliable sources
• Nature of land and CLU ascertained
• Identity and title, EC, and revenue details verified by your attorney
• Verification of RERA registration, if required
• Site visit done and boundary details verified
• Review of Agreement to Sell and payments through bank transfer
• Sale Deed registered and mutation process completed
• Taxation issues discussed with a chartered accountant

The first investment in land should be treated as a learning exercise even if one intends to invest in a large plot. Verify the facts first with a thorough investigation of a small plot in an approved layout. As time passes, prices, laws and taxes change, so verify the current position with your lawyer and chartered accountant before you sign any document.

FAQs

Is land a good first investment in India?

Investing in land can be of value to those with a long-term perspective and who are not dependent on rental income in the short term. As with all assets, land can appreciate in value; however, it does not generate any returns until it is sold or developed.

Can I get a loan to buy land in India?

Yes, banks and lending institutions do offer loans for plot purchases but, generally, the portion of the purchase price that can be financed is smaller than for a house, and the interest rates charged may be higher. However, agricultural land loans are even more difficult to come by.

What is the most important document to check before buying land?

All documents need to be studied. The title chain, Encumbrance Certificate, zoning or CLU status and revenue records need to be read together, ideally by a property lawyer.

Can NRIs buy agricultural land in India?

Generally no. Residential and commercial properties can be purchased by NRIs, but agricultural land/plantation property/farmhouses are restricted under FEMA rules. Please check the latest rules from the RBI/authorised dealer banks.