Content Analyst at InvestorsClinic
Many investors overlook the benefit of land investment and put money in either a residential or a commercial project. But, land banking is an evergreen real estate investment in India as the continuous development in infrastructure increases land cost and thus a person can yield a better return on investment via owning a land parcel. However, investors compare land investment with other real estate investment but today here we let you know the concept of land banking in an elaborate manner.
This is a process where the investor known as an aggregator purchase land or plots in multiple localities and sell them only after there is an increase in the capital value of the land. The up scaling of land prices depends upon various factors like change in demographics, announcement of infrastructural projects and coming in of real estate projects in the locality.
A land aggregator can be anyone including a real estate developer, an NGO [Non-Government organizations], Educational institutions like Universities or an individual. Apart from these, both State and Center Government can also be one of them who purchase land for carrying out infrastructural development under the Comprehensive Development Plan [CDP].
There are three types of land banking models in India and all of them are elaborated below.
Buying and Selling is the first one and is the simplest of all. In this model, the aggregator purchase land parcel or plot from the original landowner at the lowest rate and sell the same land to a third person once the capital value increased by manifold. This allows the aggregator to yield a high return on investment.
Joint Development model is the second kind of land banking and here two parties are involved. Under this model, an aggregator owns land and the real estate developer carries out the construction work. The shortage of land in tier 1 cities has shifted the focus on this model mainly as the supply and demand of residential complexes and commercial office spaces can be balanced by working under the Joint Development Model.
Land Leasing is the third type of land banking in India. Here there is a change in the role of an aggregator where he/she works as a middleman between the actual land owner and the lessee who hold land for construction. Here, the aggregator is responsible to carry out lease contracts, offers guarantees on behalf of the owner and is responsible to complete the process of land mobilization. The experts state that land leasing is a wise investment option in comparison to buying and selling of the land parcel.
Center and State Governments acquire land to develop various infrastructural facilities such as hospitals, schools, parks, roads and metro projects. Apart from this, the land is also procured to build various residential and commercial projects.
Real Estate Developers are the second investors in Land banking as many of them buy or lease land parcels to develop residential and commercial projects while considering the infrastructural development proposed by the Governments.
Individual Investors are the last ones to invest in land banking and these people mainly include rich and wealthy families who believe in expanding their asset values for future generations. The members of business families also invest money in land to increase their individual asset value.
Land banking is undoubtedly a wise deal in real estate but you must consider factors like clear title papers, current and proposed development of the area, amenities in the locality and job opportunities in and near by the locality as the consideration of these points today will not allow you to regret tomorrow.
