Land or Apartment: What's the Wiser Choice?

The apartment culture has taken over the residential market in major cities of India, but people still cherish the desire to buy a plot of land and build their own home. If you intend to do so, you must gauge several aspects such as the cost of building, appreciation, financial assistance and income, carefully. Ajit Narasimhan, Category Head - Savings and Investments, BankBazaar.com, says, "Investing in real estate is almost always rewarding if you do it the right way. The key is to identify what you need out of your investment - regular returns or higher appreciation over time - and match it to your investment capacity. The trick lies in not over-stretching and never ever cutting down on the due diligence necessary." Here's a comparison to understand what makes more sense - an apartment or a plot of land.

Investment

Buying a ready-to-move-in flat requires you to pay a lump-sum amount or take a loan and pay EMIs over a period of time. This means you pay as you start living in the house. However, buying a plot requires you to have funds at your disposal to construct the property on the land bought and turns out to be more expensive compared to buying a flat of a similar size and dimension.

Cost of purchasing a flat or land depends on the location. If you are considering purchasing a plot within city limits in a metro - where space is a constraint - the price would be much higher than what you would pay for a flat. On the other hand, if you were to invest in land in one of the Tier-II cities in India, you would be able to acquire a substantial plot of land at a much lower price. The thing to remember is that while several banks offer loans to buy a flat, not many offer loans for plots.

Also, building your own home demands not only money but constant monitoring of the construction process. Ashwinder Raj Singh, CEO, Residential Services, JLL India, says, "When you buy a plot, you have to regularly monitor the construction activity and there are chances of a project going over budget since a common man does not have the experience and expertise of constructing properties on a regular basis. But with a flat, a fixed amount is to be paid to the builder for the basic set of requirements that are pre-decided as per the agreement."

Besides, converting a plot to a residential area requires several permissions and clearances from civic bodies. "Unlike in the case of flats where the builder is responsible to get all these in place, you would need to secure this yourself if you plan to build your house in your plot. This is time-consuming," adds Narasimhan.

Scope of Resale

When you construct your own home, you do it as per your liking and taste, which may not necessarily appeal to a potential buyer when you decide to sell it. He will then have to either invest more in renovating it or pulling it down altogether to build a new one. This can impact the selling price of the property to a great extent. This disadvantage is absent in the case of apartments because they come with a fixed structure that's part of a building and, hence, easier to sell at the market price without much bargaining.

Amenities impact the resale price, too. "Prices of flats rise higher and faster given their limited number compared to independent houses which may not boast extra facilities that a housing society provides. The only advantage plots have is that the buyer gets to own the land and can construct a new house or an entirely new building to make profits," Singh says. Narasimhan believes that houses have a higher resale value than flats, "primarily because the person buying the house also becomes the owner of the plot of land on which the house has been constructed".

Return on Investment

When it comes to independent houses, the value of the land rises, but the built-up property's value keeps going down over the years due to usage and resulting deterioration. The seller has to regularly invest in its upkeep.

A flat's worth keeps increasing consistently since it is always in demand due to its affordability factor. However, the owner of a plot can make profits on his investment if he plans wisely by constructing multiple floors and renting them out. Also, as lesser number of houses is being built on plots, their demand is rising amongst those who can afford them. Purchasing plots purely for investment purposes can yield healthy profits, too.

Safety

It is imperative to be sure that the plot one is investing in is free of all legal complications; that the seller has all the required deeds and documents in place to sell the land and there is no dispute - criminal or civil - associated with that piece of land. "A lot of frauds happen where the buyers are duped into buying government-owned lands or plots under legal scrutiny. This is normally not the case while buying a flat, as necessary permissions are in order from the municipal authorities and a builder only constructs and sells the property after undergoing due diligence in most cases," Singh says. The other factor is security. A housing society is well-protected and guarded round the clock and has state-of-the-art security systems and a lot of families around, which means the probability of something untoward happening is low. Living independently means investing in security from your own pocket.

Conclusion

Choose the best option after analysing your needs, financial abilities and liabilities. If you are merely looking to invest your funds for a few years until you are ready to invest in a flat, a plot in a location that will see appreciation in the future would be a good idea. However, if you are looking for regular returns, you may want to consider investing in a flat.