The benefits of land banking, for buyers and sellers: The benefits of land banking, for buyers and sellers
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2 December 2018 - 8:37, by , in NRI, No comments

Benefits of land banking for buyers

  • Appreciation of the land’s appraisal: Land is one of the rare assets that appreciate over time. Hence, buying property, with high development potential, at or near its present market value, ensures maximum value deliverance to the investor. If the land is secured at a time when demand is low, which also means a lower acquisition price, a substantial profit can be made in the future, when the market is high.
  • Value addition: Value addition to the site is plausible, by obtaining property development approvals & then, over time, proceeding with property development. Value addition makes the land extra attractive for developers, who may be ready to pay a premium for it. Alternatively, the land banker may opt for financing & continue with property development.

Benefits of land banking for for the sellers

  • Above-market rates for the land: Land bankers generally buy properties at prices above market value & offer no significant return on investment at the time of purchase. Hence, the seller gets an above-market rate on his/her land.
  • Elimination of risk: The seller can eliminate the element of risk attached to his land, if it offers no significant returns on investments, due to its unsuitability for commercial & agricultural purposes.

Status of the land banking in the India

According to the Thomson Reuters Foundation, the standard size of land holdings in India is 11,500 sq. Metres, with higher than two-thirds of owners holding less than 40,000 sq metres of cultivable land. In rural India, over 56 percent of the households own no property. “Even as the size of holdings declined due, to indebtedness & inheritance over the decades, demand for land for industrial & development use has increased, as the economy grew. This has led to conflicts b/w farmers and states, stalling projects worth billions of dollars.

With the implementation of demonetisation, the Real Estate (Regulation and Development) Act (RERA) and the Goods and Services Tax (GST), many small land bankers sold their inventories to more significant players. A shortage of funds & the prolonged slowdown in the real estate market, have forced several mid & small-sized developers to partner with big developers, for completion of projects.

Impact of GST & RERA

Momentum is also building, for the formation of real estate within the ambit of GST, with various states backing finance minister Arun Jaitley’s suggestion that real estate should be taken under the GST. The GST Council meeting on November 9, 2017, couldn’t arrive at a simplification of the process & has postponed the decision to next meeting. Furthermore, such a measure would require an amendment to the constitution. At present, schedule seven of the law lists taxation of land and buildings, as part of the state list. Since July 1, 2017, leasing of property, renting of premises, as well as EMI’s paid for the purchase of under-construction houses, have been attracting GST. Any lease, tenancy, easement, or license to occupy land is considered as a supply of service & hence, comes under the central GST (CGST).

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