BUY LAND! THEY DONT MAKE IT ANYMORE !!! – reason & advantages

Mark Twain very famously remarked once – “Buy land, they are not making it anymore.” Personally, I feel, never has any real estate investments been better advised than above.

When I returned from the USA in 2004, and I huddled with my friend Ramesh Menon to identify the areas where we could invest our hard earned money. The brief was clearly to focus on three factors, on which to scale the investment strategy.

RISK                           On a 5 year horizon, how much would each investment avenue Grow /        Stagnate / or depreciate

TERM & TERMS        Entry level pricing to be benchmarked against the stay-in period of investment over a 3-5 year window

LIQUIDITY                  How easy would it be to PROFITABLY EXIT, in parts or in whole?

Our detailed study & exercise led us to the conviction that LAND IS LESS VOLATILE compared to mutual funds, stocks, equities, Investment trusts etc. Haven’t we all experienced and witnessed the massive erosion of wealth & valuation in the past few months, on most investment instruments mentioned above?

I am happy for my strategic decision to choose land over the other mediums, as the preferred investment three years ago. As for valuations, my investments have already appreciated over 300%, and still going strong.

It would be a good idea to share the seven reasons why we feel that investing in land is the best option within real estate compared to the much more “touted & publicised options” of built up spaces in buildings.

Reason # 01 Land is an evergreen, ever-growing asset. Brick & mortar assets like buildings (mall space / office blocks) deteriorate with time, whereas LAND DOES APPRECIATE, with time. Remember, some studies confirm that the value of any commercial building becomes ‘Zero’ in 27 years. Even when the building is useless & demolished, what is left behind is LAND.

Reason # 02 Land is an asset from day one. It has very little lead time to mature from purchase to progress. For e.g. If you are an early bird buyer for a residential or commercial property, it typically takes 3-5 years for your asset to be registered in your name, and to draw returns from them. One keeps investing money & time for 3-5 years, without returns. Land can be registered immediately, and can start delivering returns.

Reason # 03 Land is one asset which affords the most flexible options, within the real estate products.  You can choose to buy any size & dimension, any value, anytime. Besides, land can be put to multiple use during the period of ownership. Let me elaborate. Agricultural land if invested into; can be used for farming. Post zoning, land use can be changed and commercially used. Anything build on it can be redeveloped, for e.g. the same piece of land could end up being used as warehouse premise, commercial, residential, etc. etc.

Reason # 04      Land affords simple investment management. Once bought, it doesn’t incur high costs compared to built-up products. It is most likely that the land bought is self sufficient in deriving the maintenance cost, whereas, the other products attract a continually incremental maintenance.

Reason # 05      if we analyze the supply Vs demand for real estate products in our country, land as a commodity would remain in demand for the next couple of decades. There is an acute demand for finished products, which would have to be constructed on LAND.  Hence, investments in LAND are bound to grow, provided the buying strategy is right. For e.g: Delhi as a city state is forecasted to grow from 136 lakhs to 240 lakhs of population in the next decade. That necessitates almost another few thousands of hectares to be brought under development. Hence, invest in land today, rather than wait for appreciation at a much later date; at much lower returns.

Reason # 06      With the economy projected to grow at a fast rate, and with disposable incomes being higher, aspiration of green living, bigger houses, better amenities, affordable luxuries etc. would take over. Those can be achieved on bigger land chunks being brought under development. Hence, invest in land today.

Reason # 07      Land affords the “right balance in your real estate portfolio”. While investing in real estate, one needs to have a right product mix to hedge the risk, with one or two products which are low on risk and high on returns. That is what land promises to be.

Having said the above, we also advise our clients to exercise the right amount of caution and source expertise while buying land. Seek out experts rather than take the ‘gut-feel-approach’. Analyze-understand-replicate success stories in land as a portfolio rather than try to re-write a success story. Remember, all leading developers in our country grew at this scorching pace on valuations, using land as the growth engine.

HAPPY LAND-ing!!!!!!!!!!

The author is the Founding Partner  for a Gurgaon based Real estate consulting organization Certes Realty Ltd. and can be contacted on ajay@certesrealty.com

11 thoughts on “BUY LAND! THEY DONT MAKE IT ANYMORE !!! – reason & advantages

  1. Dear Menon & Ajay,
    Thanks for all the help given by you during the visit of the ex-army members to the Lal Dora sites in Kanjhawla.
    We would like to create a group housing project on Lal dora land. We look forward to all possible assistance from your end.
    Thank you once again.
    Brig.Ray

  2. Dear Mr. Agarwal,
    We have come across many such cases during our research and transactions activity.
    Since DDA was the sole agency in Delhi creating the residential dwelling units, there was always a deficit between the demand and supply. And a lot of home-seekers ended up buying land / plots in unauthorized colonies.
    Most of these unauthorized colonies have come up on agricultural land parcels, and are not authorized for development of residential colonies. It is our observation by travelling through your are that many a water connections are either illegally tapped, or, resort to independent bore-wells. During 2008, there was an announcement by the Delhi government to regularize some colonies, provided certain conditions were met. As you would be aware, till date, there hasn’t been any concrete action announced.
    There are a lot of myths surrounding Lal Dora land. For the records, Lal Dora land means “Residential land”. It can be used for residential purposes. It is NOT AGRICULTURAL LAND. To our belief, Lal dora land, for self dwelling, is a much better, and safer option than buying a plot in an unauthorized colony, wherein the land usage is still Agricultural. Unless it is regularized, and the land use changed to residential, the plot that you refer to remains illegal for construction of a residential dwelling unit. You would also find difficulties in getting the building sanction approvals, as well as leverage mortgage to finish the construction.
    As for the extended Lal Dora plots in Kanjhawla, our research through periodic site visits, as well as the information gathered through the Right to information act, the Plots under Khasra number 142 are announced residential plots. There are houses already built on the same. Of late, there has been increased queries from developers seeking to build apartments/ multiple DUs on the plot size measuring 2100 sq. Yards. Our advice has been to seek prior building sanction plans, as well as funding through financial / banking institutions.
    Our observation is that the current pricing in the area is attractive to acquire land, as well as look forward to the entire area developing into residential hub.
    We do not recommend or advise investment into land wherein the land usage hasn’t been defined yet. (or proposed under the MPD 2021).
    For a more objective advice, please connect with our legal consultants, who can advise you on the specific status of your land, and accord specific advise on the extended Lal dora land.

  3. I have a plot of 400 yards near sector 21 of Rohini. I had purchased it in 2000 and I have come to know that it is not a regular colony. It is private colony and not authorised. Our colony has electricity connection and water supplied by coloniser. Now I learn that some 1600 colonys being regularised and our colony name is not there.
    2-3 kms ahead in village kanjhawla on the same road there is lal dora land where all approvals are being issued. I want advice if I should sell my land and buy in Lal dora? I want to construct house and live there after retirement. What is difference between both approval and which is safer. Please guide me

  4. Dear Ajit,

    Thanks for appreciating and recommending our initiative for “assimilating & dispensing” information about the Delhi Master plan 2021.

    Lal Dora land was always distinguished by a thin dividing line between the Urban & Rural areas, which have since blurred with the rapid expansion of the Delhi city. There abounds fair confusion about the status and approvals required under the Lal Dora lands. Let me re-produce here one excerpt from the Expert committee report for Lal Dora.(report published in Jan’2007)

    “Building control regulations were neither prescribed nor made effective in Urban villages (lal dora OR extended Lal Dora) under the erroneous but convenient assumption that since such regulations were not applicable in the village abadis, the same would also not apply to urbanized villages as well”.

    Even the sanctioning authorities seem ‘not so clear’ whether one needs to get the plans approved.

    Our recommendations remain as below:

    a) It is always better to get the plans approved, architecturally, structurally and from the correct authorities. There is a scheme where a registered architect can self-certify the plans, and submit to authorities later. This was introduced to make the system less cumbersome and responsive. You could take this route. Either ways, since you plan to build a house for yourselves, you would prefer the best structure.
    b) A registered architect would be able to secure all approvals pre-construction.
    c) If you are not being served with information through the regular channels, you could seek through the Right to Information Act. (RTI). File a RTI application and you would likely get the reply from the authorities within 30 days.

    Hope this fulfils your query.

  5. First, I would like to thank you for your informative website that provide an insight on the lal dora opportuities.
    Secondly, I would lik eto inform that I have a small plot (50 sq.yards) in extended lal dora / abadi area in Burari, Delhi – 84 and plan to construct a two floor house in near future. I would appreciate if you could provide me more insight on the following queries:
    1. Is it mandatory to get building plan sanctioned from MCD?
    – According to the Executive Engineer (B) – MCD as the plot is situated in the rural area, it’s not mandatory to get the building plan sanctioned. At the same time, the office of EE (B) was unable to provide a written statement or supportive document and I was advised to contact the town planning office of MCD for the same and subsequently they too were unable to help me out citing that it’s not in their jurisdiction.
    2. From where can I get the details related to my query along with the supportive documents and how?
    Your swift response in this context would of great assistance.
    Thanks & Best Regards,
    Ajit Thakur

  6. Dear Ramesh Menon
    Certes Expert,
    I read your article here: (what-is-lal-dora-land-delhi-master-plan) and wanted to inquire further regarding Lal Dora. I am considering renting office space in Lal Dora real estate for commercial purposes. The rent is dramatically less than in a 100% commercial zone but I am concerned that they may be some hidden restrictions. I also do not want to risk potential sealing by the government. Could you provide more details (or reference to a reliable source of information) regarding operating commercially in Lal Dora zones?
    Best regards,
    Sarah Hine

  7. I thought I would share an artice which appeared in THE ECONOMIC TIMES NEWSPAPER. This might be useful for everybody.
    —————————————————-
    Lal Dora literally means red thread, which was in use in the past for demarking the jurisdiction of a village. Presently it denotes the boundary of
    the territory of village within which norms and controls of municipality or urban development authority is not applicable.
    But as these area did not come under the Municipal Corporation of Delhi (MCD), a haphazard development took place. So much so that it became a problem for the civic authorities as it was used to violate all the rules in Delhi. The land in these areas was supposed to be sold to a villager only so that outsiders would not increase the density.
    But, as these villages are inside the central part of Delhi, and many of them are in close vicinity to posh south Delhi, businessmen and industrialist bought land through power of attorney here at substantial premium to prevailing rates, but still at a huge discount to the MCD area in the close vicinity. In most of the cases land price in the Lal Dora is one fourth to one tenth of that in MCD area. This has created a mesh in these area which has attracted severe criticism from various courts.
    Various regulations
    In all, there are 362 villages in Delhi out of which 135 are currently classified as urban villages and 227 as rural villages . When the revenue settlement was done for the first time in Delhi, the population of these villages was included within a well-defined lal dora area. Outside this lal dora area, the agricultural produce was appraised for the purpose of land revenue. Since the village population saw natural expansion between the settlement of 1908 and the beginning of consolidation exercise for land holdings (around the year 1952), the extended village populace was enclosed within the new peripheral boundary known as Phirni and the area between the original lal dora and the post consolidation Phirni was treated as extended lal dora.
    On August 24, 1963, a Delhi administration notification stated that within the village population comprised in the lal dora or the Phirni, no building permission was required for construction of a house if required by the owner residing on that plot for his own needs.
    Problems
    Currently, lal dora areas are fraught with problems of rampant illegal construction , gross commercialisation, bad infrastructure, over population and unemployment . Though meant for only residential construction, rampant construction & development were part of the daily routine in these villages. Some of the common violations are construction beyond permissible limit and illegal addition of a number of floors.
    On the infrastructure front, roads or sewerage, water or power, sanitation or hygiene everything has become a perennial problem. Due to its proximity to urban centres as well as cheap rentals, exporters, warehouses , godowns and even corporates started entering the lal dora areas. Cheap rental has resulted from the illegal status of the area.
    Court’s observation
    In the course of the ongoing court case, the bench also observed the unplanned , unrestricted and unchecked growth of these commercial establishments (on lal dora land) without adequate facilities for parking and roads has, affected life in the city. Whereas, in September 2004 the Delhi High Court said there should be no distinction in the treatment of rural and urban areas within urban limits, which implies that the building bylaws are applicable in the lal dora areas as well.
    One of the terms of references of the Tejinder Khanna committee (on unauthorised construction) was to recommend policy guidelines and development control norms for regulating construction activities in lal dora and extended lal dora areas. The committee opined that some of the developments, which have taken place in the lal dora or extended lal dora areas, need to be carefully considered . Some of these are:
    Construction of additional storey beyond two and a half storeys normally permissible in the city under the MCD Building Bye-laws . Some lal dora premises have been sold to commercial buyers who have established show rooms and eateries. Some guest houses/show rooms/factory outlets have been established in the lal dora areas abutting on major highways Commercial activity of non-village origin , such as the fashion designer outlets are being conducted within the lal dora areas even along smaller streets.
    Recommendations of Tejinder Khanna Committee (TKC)
    Special building bylaws will need to be framed for village population (lal dora and extended lal dora). In order to accommodate the heavy population pressure and dearth of alternate residential sites, a height authorisation of upto 4 storeys (15 meters) on plots abutting on the Phirni and upto 3 storeys (11.5 meters) on other interior plots may be permitted.
    Sufficiently wide access roads are required to enable fire tenders and ambulances to reach premises, which may require such assistance. Complete property ownership records should be developed and maintained on a digital database. All existing properties should be surveyed /evaluated from the standpoint of structural safety. Any building generating safety concerns should be earmarked for remedial action.
    Commercial activity may be permitted on narrow streets below 9 m or 6 m width provided such streets are designated as pedestrian shopping streets * All existing show rooms or guest houses abutting on major public roads may be regularised, in view of the general policy recommendation to allow non-residential activity along such roads, subject to the availability of service road and some additional parking facilities.
    All the above facilities meant for the lal dora areas should be equally extended to area falling in the extended lal dora. Plots in the extended lal dora area should also be allowed to be used for running educational and health care institutions , professional training institutes, subject to availability of parking space and adequately wide access roads.
    Village development plans by way of Local Area Plans (LAPs) should be prepared in consultation with the residents, for all lal dora and extended lal dora areas , in each village.
    TKC is also of the view that as and when a policy permitting private colonizers /developers to develop housing/commercial/institutional facilities in areas earmarked for further expansion of the urban area of Delhi is put into effect, farmers owning sufficient land, as per prescribed norms for this purpose may be permitted to participate in such a development process, on merits.
    With the above, it is hoped that if and when lal dora areas are regularised, it would lead to safe and quality development , improvement in physical and social infrastructure as well as a significant escalation in real estate prices, a win-win situation indeed.

  8. what is the prevailing price of the residential plots. I have 2-3 plots in the name of my father and I would like to know the following.
    a) Should we retain the plots or sell them out now?
    b) Are we allowed to enter into a JV with some part to construct housing projects.
    c) how soon can the approvals be received.
    How can you guys help us in this regard.
    PD

  9. Institutes on LAL DORA LAND allowed to add seats, courses
    Tribune News Service
    New Delhi, June 18
    The Delhi Cabinet has allowed technical institutions located on Lal Dora or extended Lal Dora lands, affiliated with Guru Govind Singh Indraprastha University, to increase the seats available in the existing courses, as well as adding new courses subject to fulfilment of certain conditions.
    The conditions specified are enough built up space, no new construction on account of adding new courses or increasing the intake of existing courses and title of the land on which the institution is located should be in the name of the institution or society concerned.
    This decision is a follow-up of an earlier Delhi Cabinet decision which granted permission to existing technical and higher education colleges or institutes located in Lal Dora and extended Lal Dora land, for a period of one year that is 2007-2008 or till the zonal plans are notified.
    At present, seven institutes having the title of land in the name of society and two institutes on rented premises, are functioning from Lal Dora and extended Lal Dora lands whereas four diploma level institutions are also functioning from Lal Dora and extended Lal Dora lands. The decision to increase intake would help in solving admission problem of the students.
    The Cabinet has also decided to set up a better system of recovering electricity dues from the government agencies through use of modern technology like pre-paid meters and automatic meter reading and use of letter of credit system as is done in the case of major consumers of power.
    It has become imminent since non-recovery of electricity dues has a direct impact on fixation of tariff on year to year basis.
    It has also been decided to settle all matters relating to the unresolved cases of old DVB dues pertaining to private connections through the mechanism of Delhi Legal Services Authority through conciliation and mediation and with assistance of Public Grievances Cell headed by a retired High Court Judge.

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