Plot vs Flat: What makes for a better investment option?
A historical perspective
At the outset of analyzing the pressing issue, which is also the title of this piece, let’s take a historical overview. Two generations ago, this question was irrelevant for the large part of India; only some metropolis like Mumbai and, to some extent, Delhi being exception. Multi-storied apartment culture was hardly in vogue in the country until late 70s, and citizens saw it with askance.Nevertheless people pored over glossies known to run glamorous stories and pictures of Manhattan and Paris and Hong Kong with great relish mesmerized by the grandeur of tall structures.
Two or three storied houses on a plot used to be one’s dream of an ideal urbanhome. Though my grandfather is no more I could simulate how he would have reacted if someone had proposed him to choose between a built-up house (forget an apartment) and a plot. He would have dismissed the petitioner with a smug smile in obvious favoritism for a raw plot anytime.
Pride of owning a plot whether bought from civil authorities or developers is akin to owning a piece of the earth. Any argument against a plot must bear with this typicalage-old honorificfactor which still lingers in our minds like colonial legacy. The moment one goes for a flat, he has to compromise most certainly on that very in-built pride which comes from ownership of a plot (read a piece of the earth).
Change in perception
But the times and scenarios have changeddramatically in the last three decades faster than they had changed in the previous three centuries. Population versus land ratio has skewed theland price to unviable levels. Further, the time scarcity has disarmed most people fromventuring to undertake construction by themselves. At the same time, factors like need for nice location, comfortable and secure living have justified a co-existential model of apartment living. This changing reality has propelled the demand for high-rise residential and commercial properties which, as of now, have transformed the cityscape not only of big cities but of the tier two cities as well.
There is an entirelydifferent category called investors who often find it difficult to make a choice between plot and apartment. From that point, a revisit to some other hard facts would be helpful for making a right decision.
In real estate, location is paramount. Investment for a plot at right location has no comparison. The investment rises faster and one can sell it off easily because demand for plot always outstrips the supply, land being in scarcity.
Apartments also appreciate in value depending upon location, infrastructure etc. But, with age, depreciation of building is also accounted for. Having said this, it must be noted that there are so many variables which affect the price lever in the case of real estate, that appreciation trajectory of a property – be it plot or flat – cannot be generalized.
Game of Tax
Investors and buyers must be in ken of the fact that tax policies for the two properties, namely plot and flat, are different;meaning that tax advantages are not the same.
If a loan has been takenpost April 1999 for an apartment for the purpose of living in it, one can avail of a deduction up to Rs 1.5 lakh per financial year for interest paid on the loan. Above that,Rs 1 lakh deduction for repayment of the principal may also be claimed. However, if one invests for a second house, the full interest paid is eligible for deduction but the rental income from the flat is added to the taxable income.
On the other hand if a loan has been taken for buying a plot, interest paid on it does not qualify for tax deduction unless the plot is rented out. Another way to avail tax benefit on a plot is to build a house on it and then interest accrued during pre-construction can be deducted in installments in the next five years. Principal deduction is also allowed from the financial year the house is ready.
Taking into account all the facts and feelings, plot buying appears to be a saner choice even in the present times. Nonetheless, the ideal decision of buying or investment depends on various factors. So make an informed choice,and enjoy high returns and broad smile.