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Monday, January 27, 2014

Buying Home Vs Plot - Which is a better investment option?

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Buying a plot in any part of India can be challenging unless you have sound financial backing for initial investment. Banks do offer a loan for the purchase of a plot and even for construction such as SBI Realty, HDFC Plot Loans, Indian Bank Plot Loan etc. However, the associated tax benefits are subjective to whether you complete constructing a house on the plot or not, and even if you do, the benefits are offered only for the first year. On the other hand, in case of flats, loans are easier to avail, albeit, at similar interest rates. However, flat purchase attracts a lot of tax benefits, especially for first time home buyers.

Which requires more investment?

Building one's own house can be a challenge since one has to constantly monitor the construction activities, right from meeting with architects to ensuring raw materials are used correctly. Also, a common problem faced by most first time home builders is the tendency to stretch the budget while constructing the house, resulting in overspending. With flats, a definite rate has to be paid to the builder; and apart from the house and registration costs, the buyer only has to spend on getting the interiors done. At any price range, constructing one's own house will be more expensive when compared to buying a flat of a similar size and dimensions; however, it gives the owner the freedom to choose the layout and design.

Which has better resale value?

When one considers the resale value of the house, most people who are looking for an independent house prefer to buy a plot and construct their own house as opposed to buying a built house. However, with the cost of construction and land escalating, there are buyers for building independent houses too. In case of a house, the value will have a direct correlation with the amenities within the house and accessibility around it. In case of flats, the value of the property rises as the demand for flats within the colony rises. However, houses have a higher resale value than flats, primarily because the person buying the house also becomes the owner of the plot of land on which the house has been constructed.

Which has a higher rate of return?

In case of constructing a house on a plot, while the land value appreciates, the house value depreciates due to wear and tear. Owners must pay special attention towards space planning, construction quality, and quality of amenities etc. as they are the decisive factors for valuation. One reason why the value of the house is higher than flats is because of the demand-supply differences. The supply of independent houses is lower than that of flats. Also, the owner of the house has the option to get permission for adding additional floors to the house and renting or reselling them.

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