Investing in flat or Investing in plot in India

Not too long ago, a man’s worth was gauged by whether he had his own house on his own land or not. Nowadays apartments or flats are the most popular choice for new-age nuclear families. They are available in every budget, easy to maintain and come with a host of facilities for every member of the family. The community culture of living in compact spaces has taken over the residential market in major cities of India, but people, especially the elderly still cherish the desire to buy a property and build their dream house on it. Several important aspects like cost of building, appreciation, financial assistance and income have to be assessed before taking any major investment decision. Buying a standalone plot means sovereign choice to build a house according to one’s taste and budget. Therefore the houses built are of different shapes and sizes which look disorderly and don’t look inviting or exciting enough. On the other hand, a flat is a redesigned, multi-floored construction which gives a certain uniformity and symmetry to the entire property and makes it aesthetically pleasing. The property has enough space for designated areas and greenery, in addition to the various amenities available which make living in flats a pleasurable experience.

Flats vs Plots from a Residential Perspective

Pros of Plots:

Flexibility– Plot gives the owner the flexibility to construct their home according to their lifestyle and budget.

Age of Land– Land is always in great demand because of its scarcity & high appreciation value which is because land doesn’t depreciate.

Less hassles– The buyer doesn’t have any financial obligations like maintenance charges once the payment is made. There are no recurring costs and there is no interference from any one in matters concerning the plot.

Delivery– Plots are usually ready for possession. If the choice of plot is part of a township, one is likely to get possession of the plot.

ROI- A plot is expected to appreciate exponentially due to vanishing availability of space in cities these days. Flexibility of option to build as per future requirements helps the cost of property to increase very fast.

Cons of Plots:

Litigation Hassles– Plots have a higher risk of litigation. If the buyer doesn’t build a boundary around one’s property or doesn’t visit it often, there are chances of it being illegally captured by encroachers or even the land mafia. Or worse, it could already be someone else’s land or could be an agricultural land.

Low rental income– If one plans on receiving steady income in the short run, flats would be a better option as plots generate very low income in the short run. One can reap the benefits of buying a plot only in the long run under favourable market conditions.

Financial assistance– Getting financial assistance for buying a plot is difficult as financial institutions tend to avoid giving loans for purchase of plot. Purchasing a plot for a first time buyer can be a challenging task and it is advised that one have a financial backing for the initial investment and not rely solely on banks and NBFCs for financial assistance.

Tax- The associated tax benefits from buying a plot are subjective to completion of construction of the house on the plot and even it is done the benefits are offered only for the first year.

Due Diligence– Buying a plot involves a lot more due diligence than buying a flat. Land records in India are complex and incomprehensible documents that require an expert to spot any aberration or exception. Usually land records are the greatest hurdles in land deals in India.

No extra amenities– Buying a plot means you would not enjoy the safety and security that a gated society offers. The facilities and amenities that you get in a society can not be matched at the same budget in a house constructed on a plot.

Parking– Parking is an issue in residential plots if the plot is in a populated area of the city and not big enough. Nowadays everyone has at least one car which means additional space allocation.

Time Consuming- One needs to be ready to dedicate a lot of time, money, physical and mental energy towards the upkeep and construction on the property.

Investment Requirement- Building one’s own house is a cumbersome and long-drawn process and requires constant monitoring of construction activities, from meeting the architects to ensure the correct usage of raw materials. The most common problem faced by first time home builders is the tendency to stretch the budget which can be detrimental if one has limited financial means.

Pros of Flats:

Convenience – Flats are compact, require less maintenance and thus are perfect for nuclear working families. The key advantage of buying a flat is the array of facilities and services that come along with it for hassle-free living. Townships are more value for money from an end user’s perspective because they provide various facilities like open green area, 24/7 security, clubhouse, swimming pool, power backup and many more. Reputed builders like Ashiana have also launched niche townships which either have kid centric homes or senior living homes which cater to the specific and distinct needs of their particular clientele.

Bank assistance- Banks easily provide loans for buying flats. A home loan seeker can get a funding of about with maximum loan tenure going upto 30 years.

Regular income source- Flats generate handsome income from the first day of taking possession if it is given on rent. There are also less chances of litigation with modern laws in place.

Lifestyle Quotient- A flat’s worth keeps increasing over time because of the high demand. Prices of flats rise at a fast pace because independent houses don’t have the extra facilities that a residential society provides. Nuclear families nowadays prefer flats because of the facilities and security and it suits their lifestyle, hence both resale & rental value is higher in case of flats. For eg. A flat in Ashiana’s Aangan project will fetch more rental income than an independent house in the same locality.

Tax- When a buyer takes a home loan to buy a flat or a builder floor, the monthly loan repayment allows one to save tax. The Govt. is also extending CLSS to Rs. 2.67 lacs.

No Extra costs– Only a fixed rate has to be paid to the builder for the house and one can start enjoying a healthy life.

Cons of Flat:

Possession- One should always invest in a property being built by builders with a track record of delivering on time. The property should be looked at in terms of value of property and not just lowest cost per square feet.

Low flexibility- Generally, flats are built according to a standard design which caters to a particular clientele. There is no choice for buyers in terms of design and layout which maybe a putoff for some buyers who would like to personalise their residence.

Interference– Internal matters regarding ownership, use and maintenance shall be subject to interference from flat owner’s society.

Extra costs– Maintenance costs starts from the day you take possession.

Delivery– It may take some months or even years to get the possession of an apartment, depending on the stage of the construction. Any property with Occupation Certificate as on 1 May, 2017, is mandated to be registered under their States’ RERA and comply with fair trade practices or pay heavy penalties.

Use of flat– The use of flat can not be changed as it shall require approvals from the flat owner’s society and municipal authority.

Buying any form of property for residential or commercial purposes depends upon the time frame of investment and cash flow one expects from the return on investment. In a comparable location, flats would be cheaper to purchase than plots. Also, the rental income received from flats is usually higher compared to plots because flats are always in huge demand whether its for personal use or renting out.

Flats vs Plots from an Investment Perspective

Resale Value

Plots: When considering the resale value of a house, most people prefer buying a plot and constructing their own house as opposed to buying an already built house. However with the increasing cost of construction and escalating land value, there are buyers for building independent houses as well. In case of a house, the value is directly proportional to the facilities available within the house and accessibility around it.

Flats: In case of flats, the value of the property rises as the demand for flats in that particular location sees an upward growth. 

Rate of Return

Plots: In case of an independent house on a plot, the value of the land appreciates however there usually is a depreciation in the value of the asset due to wear and tear. Special attention must be paid towards space planning, construction quality and quality of amenities as they act as decisive factors for valuation. Another reason for higher value of plot in comparison to flats is the demand-supply differences. Also, the owner of the house has the option to get permission for adding floors to the house and renting or reselling these.

Flats: In general, supply of standalone homes is lower compared to flats. 

Opportunity Costs

Plots: Building a house from scratch is quite a challenging task. Procuring raw materials, getting the right labour, brainstorming with the architects; everything requires personal supervision. If one has an occupation, it’s very difficult to physically oversee everything. The construction technology has changed but it can’t be used for independent houses as the cost would be huge. There are huge opportunity costs involved where a person puts their life on hold to build a home for their family.

Flats: Flats on the other hand have no such hassles. One can move in after getting possession and decorate the place according to one’s lifestyle and taste without compromising on work.

Funds

Plots: A buyer can raise finances to buy a plot but the loan will be sanctioned only if the land has been approved by the local municipal authority. Banks allow 80% Loan-to-Value (LTV), but in the case of resale land, only about 50% of LTV is allowed. The loan tenure period is a maximum of 15 years.

Flats: Home loan buyers get a funding of nearly 80-85% and the maximum loan tenure for a flat can go up to 30 years.

Conclusion

Both plot and flat have their own pros and cons, so the best approach to choose a suitable investment avenue would be to analyze one’s respective needs, financial abilities and liabilities. If one is merely looking to invest funds for a few years until ready to make a commitment pertaining to one’s house, a plot in a prime location that will see appreciation in the future would be a good idea. However, if one is looking for regular returns, investing in a flat is the better option. If the property is attained for personal use, then land could offer an advantage of usage flexibility and handsome value appreciation in the long run. However, if one plans to resell the property after a short period, then it is more profitable to take a position in flats as its worth keeps increasing owing to its huge demand. If earning a regular rental income is the aim, one must invest in a built-up flat. An apartment can be rented out to fetch some income, whenever you want. If the investor is a senior citizen or someone with limited mobility and resources who cannot devote much time to maintain the property, then it is advisable to take the choice of a flat over land.