How does real estate banking work in India’s real estate market?: How does land banking work in India’s real estate market?
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30 November 2018 - 10:00, by , in Property Trends, No comments

We get an expert’s opinion on how estate banking – the method of aggregating various parcels of land for later sale or development – impacts India’s real estate market & the benefits that it offers to developers & landowners.

What is real estate banking & how does the business of estate banking work?

Estate banking is the practice of aggregating blocks of land at prevailing market rates or lesser, for future sale or development. A real estate aggregator aggregates area by tracking the geographical & topological locations, which are ideal for investment, based on social infrastructure & demographic factors. Usually, the tract originates to the aggregator in an unprepared form, wherein, he prepares the title reports, property boundary, zone regulations, conversions, registrations, approvals & sanctions for the property, after which, the property is primed for sale or development. Land aggregators purchase estate, wait for the land value to appreciate & then, sell the same to developers, investors & other interested parties for an ample profit.

Organisations Involved in Estate Banking

  • Federal, State & Local Governments: Government agencies use land banking to establish long-term civic planning or to support projected economic development. Municipalities gain & hold ownership of estate to be used for metro stations, new roads, schools, parks, hospitals or for residential or economical development efforts.
  • Businesses: The infrastructure that is planned for a region, can assist as a guide to plan the procurement of area. The aggregators can buy and hold undeveloped or pre-developed land blocks, which expected to rise in market value, for long-term business profits.
  • Universities & non-profit entities: Universities & non-profit entities buy the estate for future growth or expansion in public interest.
  • Individuals: Owning properties, including land, provides a sensation of security. People can use land as wealth creation media. Either for their retirement plans, to pay for their children’s education, or to build a family legacy.

Estate Banking models in India

Buying & Selling Model: In this model, the land aggregator will purchase the property from the primary landowner & sell it to a third party.

Joint Development Model: This is a favorite development model, adopted by most of the landowners. Herein, the landowner and developer combine their resources and efforts. Under the joint development model, the landowner contributes his property, and the developer arrogates the responsibility of development.

Land Leasing Model: This model is usually adopted for a long lease of the property. Here landowners offer the land without any development. Mobilizing estate through leasing contracts is inexpensive than through the buying and selling model. Here, the land aggregator works as a middleman between landowners & the third party, to process lease contracts, provide guarantees to the procedure & to process the mobilization of land.

Key Factors Deciding the Location of Estate Banking

1. Land: The land should ideally be usable & stable.
2. Title: The property should have a marketable and clear title.
3. Connectivity: The property should be well-connected (present and future) by rail, air, road and sea.
4. Social infrastructure: Public infrastructure related to education, transport, health, housing and civic amenities, should be available in the proximity.
5. Availability of Facilities: The property should have easy access to general facilities (present and future) such as electricity and water, among others.
6. Educational Institutes: Existing (or upcoming) schools & universities.
7. Growth Factors: In-line with geographic, industrial, demographic and civic growth.

In addition to the above determinants, the surrounding commercial & residential development around the property, are also significant factors in land banking.

Phases of Estate Banking

Under-developed/early Phase: Any property that intrigues aggregators, starts out as agricultural, farmland, or non-converted land. Land doesn’t see any appreciable increase in value until it falls in line with the development track.

Growth/Pre-developed Phase: The value of the land starts to rise dramatically, once the estate and its surrounding areas begin to develop with social infrastructure.

Matured/Developed Phase: Land is converted to a housing or commercial property, and after that, its value increases deliberately.

The total potential of land banking can only be realized if the estate is bought in the under-developed phase. Land banking works on patients. Most investors ignore land banking as an investment, due to the long-term nature of the business.

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