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Residential Land

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What is residential land?

Residential land commonly called a land plot is purchased to construct a house or even as an investment.

Can you avail a loan to purchase residential land?

Only 60-70% of the value of the land can be obtained as a loan from the bank or a housing finance institution and the rest of the amount needs to be financed by the buyer. Banks compute the value of the land based on the circle rates in the area. The maximum tenure of the loan is 15 years which depends on your retirement age.

The land boundaries need to be clearly demarcated and registered with the municipal Corporation. The land needs to have a clear marketable title so that it can be pledged as collateral for the loan. The land needs to be purchased from a developer or a society and not from an individual owner to get the loan sanctioned.

The amounts are disbursed to the seller of the land and not to the buyer unless an amount is paid by him. If the loan is taken for the purchase of a plot in another city the bank's branch present there checks the details of the property. If the bank has no branch in the city of purchase then the loan will not be sanctioned.

Why invest in Residential Land?

The Price Increases

If you buy land on the outskirts of an upcoming or a developing city, its price increases with time and you can sell at a profit.

You Save on Tax

You can avail a home loan, to buy land and construct your home. You get tax benefits, on the land on which your home is constructed.

Exiting is Easy

You can easily develop your plot of land, when compared to a residential apartment. It is easy to sell your land, as compared to an apartment.

Not Affected by Time

Your plot of land is not affected by time. Your apartment ages and its structure weakens, with the passing of time.

Encumbrance Certificate

You need to check if the plot of land has an encumbrance certificate. The land you buy may have been mortgaged as a security (debt) to a bank or a third party. The seller may have mortgaged this land as a collateral for a loan. The encumbrance certificate states that the land is free from any mortgages debts or legal problems (litigation).Remember to check for these documents while making the purchase of a plot of land.

Check these documents while buying land

The Title Deed

The title deed of the plot of land needs to be clear and marketable. The title deed (proving ownership of the land) needs to be in the hands of the seller of the plot of land.

You can trace the ownership of the land using the title deed. Who the previous owners were? The change in ownership of the land (as it is transferred between owners as a gift , sale or an inheritance).

Always examine the original title deed of the land.

Sale Deed

A sale deed of the plot of land gives the seller the right to sell. It transfers the ownership of the plot of land from the seller to you.

Make sure that the seller of the plot of land has the sale deed (The right to sell the land to you).

DC Conversion

You have to make sure that your plot of land has been converted from Agricultural land to Non Agricultural land. This is also known as the land use conversion (DC Converted land).

Only a DC (Deputy Commissioner) can convert the agricultural land to a non agricultural land and this land is called DC converted land.If your plot of land is not DC converted then you will not be able to get an A Khata certificate for it .It has a B Khata certificate.

The Khata

The word Khata means "account". Khata helps you find out the details of the property from the Municipal registrar. It means the owner of the land is paying his property tax.

You have A Khata properties and B Khata properties.

A Khata properties come under the BBMP (Bruhat Bengaluru Mahanagara Palike) jurisdiction and signify a legally developed land with valid sanctions and approvals.

B Khata properties are within municipal limits (BBMP) or outside municipal limits without valid licenses and sanctions. The B Khata does not actually exist. It is merely a record maintained by the BBMP in a B Register. Your record in the B Khata does not give you ownership of the property but merely states that you are paying your property/land tax.

You can convert B Khata to A Khata by paying a penalty to the Government.You need to make sure that the plot of land you purchase has an A Khata certificate to avoid any hassles.


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Concepts & FAQ's Residential Land

What is residential land?

A residential land is mainly used for residential purposes and not for industrial and commercial purposes. Residential land can be used to construct an independent house or an apartment. The purchase of residential land especially in major cities both for investment or for residential purposes is a rewarding experience both for peace of mind and for its rise in value.

Why invest in residential land?

Historically there is only one way land prices move and that is up. The easy availability of financing and high disposable income has led to a rise in land prices in urban areas in our country and even in certain rural areas. An Investment in land outperforms all other forms of investment in the long run. Investment in land involves spotting the right opportunities depending on the size of the land and the location. The prices of land on the outskirts of the many major cities in India have risen more rapidly than the central business districts. Many a time investments in land on the outskirts of major cities has led to huge appreciation in value. This is due to the rapid development of good road connectivity, shopping centers, malls, airports and schools.

Even if one purchases a residential plot and does not know what to do with it, a joint development agreement with a developer is useful. Under such an agreement the developer constructs an apartment complex and a certain number of flats are handed over to the owner of the plot based on the prevailing market value of the land at that time of commencement of the project.

Thinking of buying a Residential Land

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Tax Aspects Involved while taking a loan for the purchase of residential land

  • If the plot of land is purchased for construction purposes such as a residential house then the total amount taken is combined and tax benefits are available on the loan amounts. The tax deductions on interest are available only once the construction is complete. In the year of completion the interest on the 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.

  • Interest accrued during the construction period can be claimed as deductions over five years in equal installments starting from the year of completion of construction. The principal repayments made on the home loan are eligible for income deductions under Section 80 C.

  • In case of a plot purchased for investment purposes if the plot is vacant it does not qualify for tax deductions. If the plot is rented out and the rental income is taxed as business income or income from other sources the interest paid on the loan to buy the plot is tax deductible. There are no tax benefits on the repayment of the principal of such loans.

Frequently Asked Questions

If you are a first time home buyer, what are the essential steps that you need to follow?

  • Save money.

  • Do some homework.

  • Check your credit report for probable mistakes.

  • Become pre-approved for a mortgage.

  • Collect some data on current real estate deals and make a comparison.

  • Take the help of a realtor (real estate agent).

What is the amount of down payment necessary to buy a house?

Usually, a down payment of 20% is required by traditional lenders. However, you can make a lower down payment in case you obtain private mortgage insurance (PMI). You can make a down payment as low as 5% through utilizing PMI.

Is it necessary to have my own agent while buying a house?

Most real estate experts will suggest that buyer be represented by an agent. Let us look at the reason because of which it is suggested: The real estate commission is basically paid by the seller & the commission amount is already mentioned in the listing contract. And when the buyer doesn't have his own agent, the same agent can represent both seller as well as the buyer, working as what is known as "dual agent".

I have a flat which I want to sell and buy a new flat which will be bigger in area. What are my tax implications with regard to capital gains?

On the proposed sale of your flat you may purchase another flat within two years of the date of sale of the original flat. If you have invested the entire amount of capital gain irrespective of your area of the flat, you would not have to pay any capital gains tax.

Can foreign citizens of Indian origin acquire or dispose of residential property by way of gift?

Yes. Reserve Bank has granted general permission to foreign citizens of Indian origin to acquire or dispose of properties up to two houses by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin whether resident in India or not, subject to compliance with applicable tax laws.

Can foreign citizens of Indian origin acquire commercial properties in India?

Yes. Under the general permission granted by Reserve Bank properties other than agricultural land/farm house/plantation property can be acquired by foreign citizens of Indian origin provided the purchase consideration is met either out of inward remittances in foreign exchange through normal banking channels or out of funds from the purchasers' NRE/FCNR accounts maintained with banks in India and a declaration is submitted to the Central Office of Reserve Bank in form IPI 7 within a period of 90 days from the date of purchase of the property/final payment of purchase consideration.

In a home buying procedure, which fees are payable by the buyer?

The following fees are payable by the buyer:

  • Origination fees

  • Insurance impounds

  • Appraisal fees

  • Discount points

  • Credit report fees

  • Escrow payments

  • Interest adjustment fees

  • Homeowner's Association Fees

  • Mortgage insurance impounds

  • Prepaid insurance

  • One-time mortgage insurance premium (for FHA mortgages)

  • Tax impounds

  • Title insurance policy fee

  • Documentation fees

Few points to remember when investing in residential land

  • Check and see if the person who is selling the property is authorized to do so. Get the title deed examined by a lawyer.

  • Ensure that the title deed is in the name of the seller and no loan has been taken against the property.

  • Demand an encumbrance certificate to ensure the property is free from any legal dues and complaints.

  • Check to see if the property layout has been approved by the city development corporation and has a deeded right of way allowing the right to build a public road providing accessibility to the land.

  • Demand the release certificate from the bank ensuring that any kind of loan taken from the bank has been paid and there are no dues pending.

  • Have the land measured by a recognized surveyor to ensure the accuracy of the area and dimensions of the land as stated in the document.

  • The land should be located close to a market, hospital, school and should have proper water, drainage and electricity supply and should be well connected by road with good transportation facility. Or at least there should be possibility of development of such facilities in the near future.

  • Compare the residential plot with similar properties in nearby areas to get an idea of the cost of the plot and study the history of the plot before purchasing it.


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Aamir Khan purchases property amounting to Rs 35 crore in Mumbai

Wednesday, June 19, 2019, 5:33 PM

Actor Aamir Khan bought 9,000 square feet of commercial space worth Rs.35 crore in Mumbai, as per reports. The property reportedly includes four office units, three on the second floor and one on the third floor of a building named Prime Plaza in Santacruz West. The deal was registered in the name of the actor's production house, reports further stated.

New GST real estate rate to be applicable from April

Tuesday, March 19, 2019, 5:01 PM

The GST Council approved a transition plan for the implementation of new tax structure for the real estate-sector with applicable rules for housing units being applicable from April-1, 2019. The Council also decided that under construction projects will have an option to shift to new rate. The GST-Council in its 33rd meeting on February-24, 2019 had come up with new rates for housing units.

95% real estate companies outside the income tax net, finds CAG

Tuesday, February 12, 2019, 5:51 PM

Nearly 95 percent of real estate companies registered with the Registrar of Companies (RoC) either do not have any permanent account number (PAN) or the RoC did not have any information in this regard. This is what the Comptroller and Auditor General (CAG) has found in its audit of real companies in 12 states.


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Thursday, April 20, 2017, 7:17 AM

Check if the property you buy has an encumbrance certificate. The encumbrance certificate is evidence that the property you buy is free from any monetary/legal liabilities. It is evidence that the property can be sold as a free title and the ownership will come to you without any associated baggage. You can procure this document from the registration authority’s office.


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