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Dec
4

Flat or Plot: Which is the best Investment???

land

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.

Security/Safety Mea­sures:

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.

Facil­i­ties:

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.

LAND:

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.

FLAT:

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.

Income source: Flats generate good rental income once given on rent. There is less chance of litigation with clear laws in place.

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.

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Category : Flatons Advisors Blog

 

 

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