Real Estate Vs Mutual Funds-Investing

When it comes to buying a home people usually think of apartment/ flats as the only viable option. Then again, some of them contemplate purchasing a flat versus buying a plot of land and making it built to size exactly as per their preferences. While it can be said that there are advantages to both the options there are quite a good number of disadvantages to think of too.
Below we attempt to give you a drilldown on the pros and cons of buying a flat v/s a plot of land. It’ll not only shed some light on what investors should opt for when contemplating a ready made flat or a plot of land.

First Home Buyer vis a vis Second Home Buyer- A matter of perspective

As is common knowledge, the first home buyer is usually thought of as a young, working professional who is probably living in his/ her city of workplace. Naturally, the needs of a first home buyer, especially a young, working professional, is more centred around being located around conveniences such as schools, offices and malls.

He/ she expects to reside in the first house for as long as it serves their need, following which the house may possibly be sold off or rented out, considering the primary inhabitants workplace or personal arrangements later on in life.

Sometimes, the first home buyer sees an opportunity in letting out the house and making a profit out of the rental accrued. However, the factor of time lapse and depreciation also has to be factored in, which is possibly why it is difficult to adjudge this as clear profits.

The Second Home Buyer

Usually, the second home buyer is considered to be a profit oriented investor and one whose sole intent is to create an advantageous source of continuous income that does not run dry.

While the second home buyers financial perspective is quite clear, his tax implications are also a bit tricky as tax sops for the second house can only be claimed for the interest payment besides if the investor is purchasing an under- construction house, he can claim tax deductions on only 20% of the total interest paid during the pre-construction period.

Why it is important to determine the objectives first

The reason for enumerating the differences in the first home buyer versus the second home buyer is simple- It helps to put in perspective the very reason for investing. By determining the investment requirement, it is easier to understand what option is best suited for the investor— that of purchasing a plot of land or buying a ready flat.

Quick checklist on Plot of land v/s flat

Buying a plot of land has many implications and most of them are quite favourable. For instance, purchasing a plot of land means you are the sole entity who decides the layout of the house, the design, the number of rooms you’d like, open lawn area and even the kind of amenities you want to live with.

  • A plot of land allows for you to make extensions as per your personal requirement and constraints, today, tomorrow and forever. For eg. You feel the need of adding an extra room adjacent to the lawn area; you can freely do so, with the necessary permits and sanctions in hand. Naturally, in the case of a flat you have to live with the number of rooms that you’ve always had. An extra member of a guest room cannot be accommodated under any circumstance.
  • There are higher margins on plots of land as compared to flats, as land prices are thought to rise directly and much higher as compared to comparative land prices where buildings are located.
  • There is a higher weightage to independent houses on plots of land versus flats. The reason being that investors consider the value of not only the house but also the value of the land it is constructed on. Moreover, the investor also becomes the owner of the plot of land, which is simply not the case with flats. Land valuations have usually been seen to rise meteorically over time. In fact the better the accessibility and location, the better the valuation of the land.
  • There is never an issue of possession delay in the case of plot of land whereas there are all too many instances of flat possessions getting delayed or worse not being delivered at all in certain fraudulent cases.
  • Once the payment for the plot of land is made, there are no financial obligations to be made, especially if there is no loan on it. In the case of a flat and a home loan taken on it the investor risks the constant interest fluctuations and the corresponding Damocles sword that is perennially hanging on the borrowers head.
  • Plots are usually delivered sooner than flats and the speed and urgency of construction is entirely in the control of the investor.
  • As land becomes scarce, the value appreciation continues to rise in proportion .

Synopsis

As can be seen from above both the investment avenues have their merits and demerits, however it does seem that plots present a more viable and flexible financial option as compared to flats. Do consider all aspects before investing.