In our last article on our Property Development series, we discussed Why Real Estate is an Attractive Business. In this article we will discuss the next step viz. acquiring land for development. What is the most important factor when it comes to the business of property development? Land of course! But the first step towards finding and acquiring the right land parcel is to first of all conduct a market study to find out whether the demand for development exists in the area in which you wish to develop. We are talking about residential real estate development although the basic concepts also apply equally to commercial and industrial development. In the initial market study you will have to properly check what is the current and future planned residential construction within 10 km from your proposed site. Your market study should also include the age, income, professions and the population growth patterns of the population in the area along with the ability of the proposed area to absorb a new housing project. You will also have to check the willingness of the municipality to development apart from checking whether already completed projects are selling. We will discuss the details of market study in a future article. In this article we will discuss the location of a suitable plot of land, negotiation of price and the preparation of a land acquisition study (also called due diligence) to find out whether the land where you want to build is free of any legal encumbrances or any other problems. Let us summarise the steps before you acquire land: study the market, find the land, negotiate purchase price and terms and study the property. Remember that real estate developers do not buy properties first and then find out how to put it to use. It is the other way round – find out if a market exists and then go ahead and acquire the land!
Note that the above processes do not proceed in a linear manner and sometimes you may have to negotiate price and other terms with the seller of the land and at the same time your team is conducting a land acquisition study. Though it is risky to buy land without first conducting a land acquisition study there is also an equal risk in delaying the negotiation process because there is the danger of losing the land to a competitor. The idea is that you must simultaneously negotiate and also do the background study especially when it comes to acquiring land in “hot” zones where other projects are selling fast and where the demand from buyers exists.
The 3 Principles of Developers:
Most successful property developers follow these 3 principles:
- Buy in Your Own Backyard
If you are a new developer then you must buy land in an area that you know well and where you have lived or have visited many times thus knowing the area inside out. You must have knowledge about the social, cultural, political, geographic and economic issues in your area. That is because all these factors have an important role to play when it comes to the value of your land and the marketability aspect. It is true that you will also be doing a market study which will give you deep insights about the area but even the most comprehensive market study will not able to substitute for real and intimate first-hand knowledge of a community.
- Buy in the Direction of Growth
Go to the municipal offices and study the master plans that have been developed for existing townships. You will notice trends that will indicate the directions and areas where the growth is taking place. Also try and purchase aerial photos of the area you are investigating for building your property. This is easily done in today’s world with the help of a drone. Contact a drone camera supplier, take the relevant permissions from the local police station and take some good aerial photos and videos of the area where you are planning to develop your land. You will be surprised how easily you can see where the direction of growth is headed when you see the pictures in front of you!
- Start Small
Do not dream of creating a monstrous skyscraper as your first project! Try to build a simple and marketable affordable housing project as your first project as a builder. You will go through the entire process of land negotiation, land acquisition study, approvals and finally building the structure. You will firsthand experience what the process is like. This will be an invaluable experience worth its weight in gold about how to develop property. This experience will teach you many lessons about property development without the risks and headaches that a large development can pose. If you have enjoyed the process after you finish your efforts and if you have made a profit then you can go and start dreaming of a bigger project. If you have constructed the project and not managed to make any profit then stop and do not proceed any further until you have analysed what you did wrong and take steps to ensure that this will never happen again.
Where to Find Land
We have already discussed about familiarity with the area, market analysis and the direction of growth that you must follow which will be essential factors in helping you to determine what type of housing can be built and what will be the pricing of your property. The next step is to find raw land for development.
Contact Property Consultants
The number 1 resource for buying land especially in and around metro cities is to contact local Real Estate Agents and Consultants. They often have information of land owners who want to sell their land and if they are experienced and trustworthy they can also advise you on the financial and legal implications of the land as well. Feel free to contact us too if you are looking to buy land. We have over the years developed solid relations with many land owners and have inventory worth over 500 acres (and growing) of raw land with us. Reputed Real Estate Consultants can keep you informed and updated of properties with good development potential and make your job of finding a good piece of land that much easier.
Tax Collectors Office
Do remember though that Real Estate Agents are the easy low hanging fruits that every aspiring property developer contacts for information on land! If you are in an area where competition for land is intense you will have to get more aggressive to find out the hidden gems. A good idea is to just take your car or bike and just start driving around the area where you would like to build. Like we mentioned before you want to find land that is in the direction of growth and you also should be staying within an area that is familiar to you. Find out where the vacant land parcels lie and inquire with the local real estate agents in that area. There are certain sellers who even put up “For Sale” notices on the plot. Make a note of land parcels that interest you and call the owners later for details. Also make sure that you look for properties that may not be for sale but have excellent potential for development. Once you have found a few of the plots that you like go to the local Tax Collector’s office / Land Records office and ask for the land records and maps. The maps will list the owner’s name and address, area of the land, zoning classification, taxes and all other details about the land except price. Most tax collectors will also keep records of previous sales. Scrutinise the maps carefully for other land parcels that meets your development objectives and criteria. If everything comes together be aggressive and contact the owners and if they are interested make an offer. You could be turned down many times but you will also be surprised how many people might be eager to sell and that one deal could be the sweetest deal of your life!
Another good source of land is Banks. Most private and public sector banks have land because of mortgage defaults. Check online for bank auction properties. Bank E Auctions is a good website for the same – https://www.bankeauctions.com/. But instead of going to aggregator websites which may not be trustworthy and are owned by private individuals it is better to go directly to the websites of banks where they have a section called e-auction. Check the e-auction page of Central Bank of India here – https://www.centralbankofindia.co.in/English/e_auction.aspx. Similarly if you visit the official websites of ICICI Bank, HDFC Bank or Axis Bank you will find all their mortgaged properties listed on a section of the website and the e-auction dates for the same. You may be able to find a very good piece of land at a good price. Do remember though that you will need to get your finances in order before the auction because once your winning bid is accepted you will have to furnish the full amount within fifteen days or within a month to the bank. Loans are generally not given for e-auction of mortgaged land and properties.
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