It is permissible to trade a large piece of land for another that is smaller than it, because land is not one of riba-type of commodities for which it is required that they be equal when trading one for another. So there is nothing wrong with exchanging one piece of land for two others, or a large piece of land for a small one.
The riba-type commodities are mentioned in the hadeeth in which the Prophet (peace and blessings of Allaah be upon him) said: “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, like for like, same for same, hand to hand. But if these commodities differ, then sell as you like, as long as it is hand to hand.” Narrated by Muslim (1587).
To these categories may be added other commodities that may have the same reason to be included in this list.
The reason in the case of gold and silver is because they are measures of price [i.e., they may be used as the price for things; in the past the prices of things were reckoned in gold and silver, or dinars (gold coins) and dirhams (silver coins), so it would be said: This is worth so much in dinars and so much in dirhams]. Hence currencies are connected to gold and silver.
The reason with regard to the other four categories (wheat, barley, dates and salt) is that they are staple foodstuffs, or because they were measured by volume. Rice may be added to them by analogy.
There is a difference of opinion among the fuqaha’ with regard to the reason why a commodity may be regarded as being of a riba type, but land does not come under this heading at all.
It is proven in Saheeh al-Bukhaari (2116) that Ibn ‘Umar sold some land to the north of Madeenah to ‘Uthmaan for some land that was closer to Madeenah.
Al-Haafiz Ibn Hajar said: This shows that it is permissible to sell land for land.
And Allaah knows best.