Monday, 16 February 2015

Why you should consider land a viable investment option

Lansel D’Souza,Expat Group

Gopal Krishnan a senior manager at an IT giant in Bangalore got his yearly bonus in 2014. Unsure of what to do with the money, he sought advice from his family and friends. They told him not to risk it with some high risk investment in stock market but be safe and put it in a fixed deposit account so he can have a decent retirement fund later in his life. India is today filled with people like Gopal who have a fair amount of disposable income and aren’t aware of their investment options. They are guided by friends and family who are often misinformed too. India has seen a rise of over 29 percent in the disposable income generated in the country between 2007 and 2012. What are the people doing with this income? In the search for investment options, you usually encounter a number of risks. The popular maxim of investing is that the risk you take is directly proportional to the returns on your investment. Essentially, that means like Gopal’s FD account the lesser risk in your investment, the lower the returns and vice versa. Perhaps the starting point for most investors is the low risk option of fixed deposits, mutual funds or commodities. The more adventurous may gamble on the high risk-high return stock options. However, if you’re an investor with a medium risk appetite looking to get high returns, you might want to consider investing in land. Historically, land has only gone up in terms of value. Over the last five years, land has shown over 100 percent value appreciation in some areas. Knight Frank's Prime Asia Development Land Index showed that land for residential development in Mumbai, Bengaluru and NCR saw over 24 percent growth between 2012 to 2014. Such growth is indicative of the great potential land holds for investors, yet many haven’t recognized this opportunity so far. In terms of residential land on the outskirts of cities, you should take into account that already established residential areas may be hard to penetrate owing to few available spaces and high capital that is involved. Nonetheless, if you do your research you could find spaces that are either in the process of developing or aren’t discovered yet but have the potential to grow. These spaces provide the best opportunities in land investment. There are some key indicators you should base your research on including connectivity and access to basic amenities. Some of the major deterrents to buying land in the past have been misconceptions associated with it. People often go by the erroneous notion that land does not produce income or produces very little of it. According to research, land was the investment that provided over 100 percent returns on investment between 2010 and 2013. The difference with land as compared to other investments is that it is a tangible asset that allows you to adopt a few precautionary methods that reduce the investment risk from medium to low while still maintaining high returns over a long term. Out of the approximately 700 million acres India covers, 500 million acres is dedicated to agriculture and forest cover, leaving only 200 million acres for the 1.2 billion people in the country. This little patch of land is important to everything we do in society and communities. The world, especially India is short of habitable land that needs to be able to develop, accommodate, expand, scale up, build, grow or upgrade. Nonetheless, that’s only a part of the reason investing in land should be an element of your portfolio. All of the three primary needs for life – food, clothing and shelter – are dependent on land, which provides the investor with a host of flexible options on getting the best out of your land investment. You could dedicate it to organic farming, tap into a small business idea or build a home on it. At the same time, it also gives you an option to leave it alone because in most cases it still continues to appreciate steadily and surely. Despite its promise people are often discouraged from investing in land by their perception of the amount of capital required for it. Firstly, it is more economical to buy vacant land than a developed property, a number of investors have invested in land using their savings and entirely avoiding dealing with loans and mortgages. Moreover, if you can find the right places to invest and get in at the right time, the returns could be great. The additional feature is that land can be a source of passive income over the long term, meaning it requires the customer to do little actively to gain returns. In essence, land as an investment provides a wider range of business opportunities in a sector that rarely depreciates. Mutual funds, equities, commodities, residential property and other options all make sense in certain scenarios and so does land. It is a long-term option that will diversify and add volume to any investment portfolio. It’s important not to jump the gun on land investment, only venture into it if you’re willing to consider it as a serious option and treat it as a business endeavor.