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Second home as an investment - Buying a Land Vs Flat

Source : SIFY
Last Updated: Wed, Feb 05, 2014 07:30 hrs
​Real estate

The second home buyer or investor normally falls into the dilemma when it comes to investing in land or an apartment. Both the investments have some merits and demerits, but there are a few important points that can help an investor arrive at a definite stand.

bankbazaar.comBuying an independent land/floor means sovereign choice to build a house depending on one's own requirement and constraints. On the other hand, a flat apartment is a redesigned, multi-floored construction. The apartment buyer has lack of freedom to change the shape and size of the construction area. However, it benefits in matters related to security, accessibility and location advantages.

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 up to some level. Flats are very easy to buy and an investor can take leverage on its fund, in conclusion the return is also very good. The possession delay by the builder is a major concern in case of flat investment. Another big problem could be strengthening interest burden while one invests in multiple flats on a leveraged financial position at a time of slow-down in economy, however, the land investor doesn't need to worry in such a situation. 

Conclusion

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 his personal use, then land could offer an advantage of usage flexibility and handsome value appreciation in long term. However, if the investor wants to resell the property after a short period then it is more profitable to take a position in flats. As an investor is not required to hold the flat for a long term, it also eliminates the depreciation factor. If the investor is a senior citizen or someone who cannot devote much time to maintain the property then again it is advisable to take the choice of a flat over land.

A comparison between Land Vs Flat investment's benefits and weaknesses

Detail

Plot/Land

Flat/Apartment

Cost

Depends on locality, size and availability of space

Depends on locality, services, accessibility, size, design and developer's brand

Value Appreciation

With space availability vanishing quickly in every city, it is expected to appreciate very quickly. Flexibility of option to build as per future requirement helps the cost of land and property to increases very fast.

A flat has a limited life span, so its value has a diminishing effect. After a certain period of time, there is stagnancy in the growth. Lack of flexibility in use, modification and expansion are hindrance to a quicker growth w.r.t land

Risk

The land is prone to litigations and it is very difficult to come out of it once anyone is involved.

The delay in possession by developer 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

The buyer has limited options to leverage its financial position for buying a land property as banks usually doesn't provide finance for buying a land/plot.

It’s very easy to take a bank loan for buying a flat.

Regular Income Source/Rental Income

Land generates a very low income if rented and sometimes it is difficult to reoccupy the land if the tenant pushes the property into litigation

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

Liquidity  and future prospect

Land is always in great demand. The value normally appreciates immediately due to zero depreciation on land.

The depreciation on construction reduces the growth rate, therefore its value grows with a diminishing rate.

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