What Is Land Banking And How Does It Work?

Pavithra S
Pavithra S / 2 yrs ago /
  9

While there are several measures being taken by the government to stimulate the realty market growth in India, Land Banking is one of those market revival practices being put to use in the country. It is hoped that this new process will positively impact the real estate market and prove beneficial to both the developers and landowners. Read through to get to know more details about land banking and its impact on the Indian Real Estate.

What is Land Banking?

Land Banking deals with the practice of accumulating land parcels for future sale or development at the present market cost or at a rate lower than that. A land aggregator usually piles up land parcels, which are primary for investment purposes, by tracking the geographical and topological positions and on the basis of social infrastructure and other demographic factors.

Usually, the aggregator takes the land in an unequipped format. The title reports, zone regulations, property boundary, registrations, approvals, and sanctions for the land are prepared and undertaken by the aggregator therein after the land is primed for sale or development. The land aggregators first purchase land, wait for the land value to appreciate and then sell them to the developers, investors, and other interested people for a considerable profit.

Institutions that are Associated with Land Banking

  • Central, State & Local Governments: Land Banking is used as a supportive measure by governments for long-term civic planning and future economic development. This way, municipalities gain and hold the ownership of the land that is to be used for the construction of new roads, metro stations, schools, hospitals, parks, and for other economic and residential developments.
  • Businesses: Planning of a city’s infrastructure serve as a guide for the land procurement plan. The aggregators are allowed to purchase and hold either undeveloped or pre-developed land pieces (that are expected to increase in market value) for the long-term business profits.
  • Individuals: Owning a land/property provides a sense of security in general for people. Individuals, thereby, can procure land for many of their personal purposes like payment for children’s education, creating a family legacy or for their retirement plans.
  • Universities & other non-profit organizations: These institutions can purchase land for any expansion in public interest activities and for future growth.

Land Banking Approach in India

Land Banking is done in three different models in India.

  • Buying & Selling: This is the method of land procurement where the land aggregator will buy land from the primary landowner and then sell it to third-parties.
  • Land Leasing: This is the approach through which the landowners offer a piece of land without any development. The land aggregator here works as a mediator between the landowners and the third-parties to process lease contracts. Piling up land parcels through leasing contracts is far less expensive than the buying and selling model and this method is generally used for a long lease of the property.
  • Joint Development: This is the most popular land banking method adopted by most landowners. Here, the owner of the land contributes his piece of land to the developer who in turn takes the responsibility of development. Under the joint development model, both the landowner and the developer pool their resources and efforts together.

Phases of Land Banking & Key factors

Land banking is done in three phases: Under-developed or early phase, pre-developed or growth phase and developed or the mature phase where the value of land varies as per the prevailing conditions. Land, title, connectivity, infrastructure, civic amenities, upcoming educational institutions, the surrounding residential & commercial development of property and other geographic, demographic & industrial growth factors are the key determinants that decide the location of land banking.  

How is Land Banking Beneficial for Buyers and Sellers?

While buyers benefit from the appreciation of land’s value and value addition, the sellers gain above-market rates for land and risk eradication.

The land is one of the assets that have potential to appreciate over a longer period of time, so investing in land that has high development potential at the current or lower market value ensures maximum returns to the investor. Property development provides value addition to the site and it makes your land more attractive for developers. This way the buyers benefit with land banking process.

As per the sellers, getting the land at above-market rates with no significant return on investment for buyers at the moment of purchase is beneficial. With this, the seller is also able to eradicate the risk factor attached to the land in case it offers no significant investment returns due to unsuitability for agricultural or other commercial purposes.

With so many advantages connected to land banking, the land is the best choice of investment for both buyers and sellers. If you are looking to invest in any plot/land, then sign up with Sulekha.



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