Buying a flat vs Buying a plot: Which Makes the Best Investment

Owning landed property once symbolised a family’s wealth and status in society. Landowners were influential and wielded immense power. However, all that changed sometime in the twentieth century, when a sudden exodus happened. People from villages and small towns began moving to larger, more developed cities for better opportunities. That transition brought on several changes and was instrumental in shifting focus from land to flats. But, are flats a better investment option to plots; let’s reveal what the financial gurus, investment pundits and the builders in Kerala, have to say. 

Making a comparison between flats and plots, with an eye on investment, requires understanding different aspects and their impact on the investment prospects. And we delve into all of them. 

Which has a better return on investment?

Whether you are buying a flat or a plot, the initial investment is always high. The advantage with a flat is that it starts giving returns almost immediately, through rental income. The better the locality, the higher the rental income. The amenities within the housing society and the facilities outside its gates also influence the rent. Moreover, currently, the demand for rental flats is high; many takers from the floating population move in from all over the world. Rental income is the best way to earn a flat, and there are several options available to homeowners. 

• You can let the flat out on a company lease and earn an assured income.
• The flat can be let out to a family, with a clause ensuring a 10% annual hike in the rent.
• Renting a single flat to several individuals can get you higher rent. For example, renting individual rooms in a flat to single working people or students can fetch better rent than renting to a family. 
• The flat can also be used as a Serviced Apartment or be listed on Airbnb.
• You can turn the flat into paying guest accommodation, with services such as meals, laundry etc., included.
• A flat can also serve as hostel accommodation near colleges, coaching centres and hospitals, and rent charged per bed. This arrangement is ideal for students who do not want to live in college accommodations and family/caretaker accompanying patients admitted to hospitals.

Plots, on the other hand, usually do not provide immediate income. You will need to construct a house before you carn a steady income from it. Plots are also more expensive; a property in the same neighbourhood as a flat would cost more. However, the value of a plot in a prime location is likely to appreciate manifolds over the years. 

The scale appears to tilt in favour of flats in this quick analysis. However, both types of investments have their pros and cons. It would serve you well to have an investment strategy and work around your plans. The things to keep in mind before investing are; your requirements, financial liabilities, and financial abilities. Invest in a plot if you are financially sound and willing to wait for the investment to grow. However, a flat is a better investment if you want a steady, stable income. Flats in all cities make for a good investment but consider purchasing flats in Trivandrum if you are looking for a safe and reliable investment choice, if you are investing in India and Dubai Marina if you are in UAE. 

Read also: What Is the real estate investment return in Turkey?

What makes flats a good investment?

We consider seven aspects to illustrate flats make a good investment:

• Financial Assistance and easy EMIs
• Tax Benefits
• Convenience
• Immediate Returns
• Appreciation in Value
• No Hidden Costs
• Discount Schemes

Financial Assistance and easy EMIs: Banks and non-banking financial companies (NBFCs) launch attractive home loan schemes, often in collaboration with builders, with comfortable repayment schedules. It lessens the burden and makes buying a home a little less taxing financially.

Tax Benefits: The Government routinely announces tax rebates during the Annual Budget. Under these schemes, homebuyers can claim tax benefits on home loans. Homebuyers can claim tax benefits through section 24, section 80C, section 80EE and section 80EEA. The savings can be substantial if you look at them as a whole.

Convenience: The main advantage associated with flats is the amenities and services that come with them. They add significant value to the investment; who doesn’t want 24/7 security, power backup, safe play areas for children, open green spaces, sports facilities, swimming pool, clubhouse etc., without having to pay huge money. 

Immediate Returns: One of the key selling points of flats is that they provide quick returns on investment. Buy a flat and rent it to enjoy a hassle-free subsidiary income. 

Appreciation in Value: The value of properties increase over some time. If you were to sell a flat purchased a few years ago, today’s asking price would be several times more than what you had paid. 

No Hidden Costs: The price of flats are pre-decided. When you buy a flat, you know exactly what you are getting—the carpet area, fixtures and fittings, amenities and facilities etc. There are no hidden costs, and you will not be paying for anything other than what has been decided.

Discount Schemes: Not all builders offer this, but some do. The discount schemes can vary but usually include corporate discounts, referral discounts and free accessories with every booking. The accessories can be anything, from a free modular kitchen to air conditioners in the bedrooms. 

Pros of Flats

Flats need regular maintenance. You will need to pay maintenance charges to your society, even when the flat is unoccupied. Apart from that, the flat will require annual maintenance schedules—repair works for plumbing, electrical and woodwork, and painting of the flat. Property tax will also have to be paid. 

Buying a plot as an investment

Land has always seen high appreciation; hence plots make for an excellent long term investment. That is because land is scarce and limited, and the demand is ever increasing. The cost of land depreciates in the rarest of rare instances and only in extremely unusual circumstances. Most times, the value of a piece of land multiplies many times over.  Land is seen as low maintenance, and plots are generally ready for possession, making them a good and safe investment. 

However, there is a downside too:

Litigation Hassles– Plots have a higher risk of litigation. The veracity of the land documents can sometimes be difficult to authenticate. Spurious documents are created to lure unsuspecting buyers, and such land, when bought, leads to litigation from the actual owners. Legal battles can go on for years, and in that time, you can neither sell the property nor build on it until a clear verdict is given in your favour. 

Encroachment: Land mafia is another threat. Land mafia is for real; they encroach upon vacant plots and use muscle power to intimidate legitimate landowners. Dealing with them is risky and tiresome. Legal battles continue for years, and there is also a risk to life. 

Lack of Financial Assistance: Banks and NBFCs do not extend loans for the purchase of plots. The buyers need to fund the acquisition, which could lead to the blocking of a considerable sum of money.

All said and done, land cost increases exponentially, and it can be an excellent investment, provided you can tick the right boxes.