Investors all over the world are inclined towards buying properties. These properties require acquiring loan services which come in the form of Home Loans, Land Purchase Loan or home construction loan. All of these loans have their peculiar properties and differ from each other in a certain way. For instance, a Home Loan is when an investor wants to buy a house, a home construction loan is when an investor borrows for construction process and Land Purchase Loan is when he is interested in buying a land. We usually call it property buying.
A land purchase is one of the most amazing forms of investment as the value of the land doesn’t decrease. It either increases slowly or it booms, there is no in between. Buying a land is much more popular among the Indian investors than homes. Home Loans fall under the category where loans are granted only for the property constructing, under construction or about to undergo construction in near future. On the contrary Land Purchase Loan involves financial assistance provided by the bank for the purchase of a vacant land.
Although the cause for obtaining a loan is different, the process is very much the same. Rates and processes involved in Land Purchase Loan and Home Loan are almost same. There are fine guidelines as to which lands can be purchased and what the essential criteria that have to be met are. There are various advantages and disadvantages of the same.
For instance, Home Loans can be sought irrespective of their location; the case with Land Purchase Loan, however, is a bit complex. One cannot buy any agricultural property or the land which outside the Municipal Corporation limits, the bank doesn’t help if these two basic requirements aren’t met. However, a Home Loan can be applied for once you have purchased the land for yourself.
There are several other comparisons that can be made with regards to Home Loans and Land Purchase Loans. These are as follows:
- Tax Benefits: The tax benefits under the Land Purchase Loan are much better than that of housing loan from a buyer’s perspective. Land Purchase Loan is not eligible for taxation while Home Loan is. Tax is applicable only when a construction is done after the purchase of a plot. Thus Land Purchase Loan has tax benefits.
- Low Risk: Although LTV (Loan to Value) in the land purchase is lesser than Home Loans. The risk in a Land Purchase Loan is much lower than housing loan because the only 70% of the funding is provided by the banks, unlike housing loans where up to 90% finance is provided. Thus given the less fund borrowed, a borrower has a low risk when it comes to repayment of the loan.
These were the few benefits of the Land Purchase Loan whereas there are some drawbacks too such as for an NRI to invest in the land would need an extensive research. Non-Resident Indians are the one with the capacity of buying a property but the majority of the banks do not provide the assistance to NRIs to purchase land. Even if they are provided the assistance the rate of interest charged is much higher.
Similarly, when it comes to the loan tenure the Land Purchase Loan has it much less than that of the housing loans. Land Purchase Loan usually has the tenure of up to 15 years which is much less when compared to housing loans which can be extended up to about 30 years.
Although often treated in the same way as that of a Home Loan, Land Purchase Loan comes with its own benefits and drawbacks.