Flat or Plot: Which is the best Investment???
Investment in Flat or Land, this is a very common question among the real estate investor fraternity. You already have the answer with yourself but only thing which you may not be sure is the parameters based on which you have to take a decision. This is the dilemma most investors face when deciding on buying home. Both options have their pros and cons. But there are a few important points that can help in arriving at a definite stand.
Buying a plot of land (or an independent floor in our crowded cities) means sovereign choice to build a house depending on one’s own requirement and constraints. A flat, on the other hand, comes pre-designed and does not allow much freedom to change the shape and size of the construction area. Here, we take a look at some of the main points of contention.
Some of the factors which needs to be considered before zeroing on an investment decision is as follows –
Cost of the property:
Normally cost of land is same/less than cost of flat in the same location. If you are planning to buy a land and then construct a house, then you should have a significantly higher budget. Here the only point is affordability and income level.
Flat is always better than an independent house when it comes to Security/Safety. Normally flats have security guards and a robust security system in place. Apart from that there are other families who stay next door. However one can install security system in individual houses but the cost will be significantly higher.
Location of the property:
Where is the land/flat located? This is one of the most important aspects which you should be careful. Cost of land varies based on the location/proximity to Centre/important locality of the location. The same point comes again, affordability and income level.
Gymnasium, swimming pool, party hall, playground for children etc. are some of the facilities provided by the flat builder. These facilities cannot be availed by an independent house owner as it is not possible and feasible.
ROI (Return on investment):
A very popular phrase in the real estate industry – Land Price increases, House value depreciates and flat value diminishes. An investment in land is definitely better than a flat.
Let us evaluate land as in investment on some parameters in what follows:
Cost: The cost of land depends on locality, size and availability of space.
Value appreciation: With availability of space becoming a constraint in every city, land is expected to appreciate quickly. Flexibility of option to build as per future requirement helps the cost of land and property to increase very fast.
Risk factor: Land is prone to litigations, and once the process sets in, it is very difficult to get out.
Illiquid asset: Land is not a liquid asset. During a downturn, if you are laid off and need cash urgently, it may not be easy to find buyers. Investor and wealth management expert, recounts how an investor can face problems while investing in land.
No income stream: While you hold a plot of land, it will not offer you a regular income stream. The only gain comes from capital appreciation when you sell it.
Bank Assistance: The buyer has limited options to leverage financial position for buying land as banks usually do not provide loans for land purchase. Even if some cooperative banks do, the tenure is limited and the loan-to-value has a ceiling of usually 60 per cent.
Liquidity and future prospects: Land is always in great demand. The value normally appreciates immediately due to zero depreciation.
Let us evaluate a flat purchase on the same parameters.
Cost: Depends on locality, services, accessibility, size, design and developer’s brand.
Value Appreciation: A flat has a limited life span, so its value has a diminishing effect. After a certain period of time, there is stagnancy in growth. Lack of flexibility in use, modification and expansion are hindrance to a quicker growth as compared to land.
Risk: Delay in possession is one of the most common problems. Quality is often compromised by the developer to control the cost and meet the deadline, so the life of flats gets reduced.
Bank Assistance: It’s very easy to take a bank loan for buying a flat.
Liquidity and future prospects: The depreciation on construction reduces the growth rate; therefore its value grows at a diminished rate in comparison to land.
No doubt a land has an advantage of assured returns, but it usually needs investment in full and there is no choice of taking leverage on the fund hence overall return is limited to a point. Flats are very easy to buy and an investor can take leverage to fund its purchase, and returns are good.
To judge the best investment avenue between a land and flat, one should first focus on one’s own requirements. If the investor wants to use the property for the personal use, then land could offer an advantage of usage flexibility and handsome value appreciation in the long run. However, if the investor wants to resell the property after a short period then it is more profitable to take a position in flats.Google+ image
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