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Apartment or land?

One offers convenience, the other better returns. We look at the pros and cons of investing in an apartment or a plot of land.

By Rakesh Rai | Print Edition: May 31, 2007

Investing in real estate? Arranging funds is a breeze— banks and housing finance companies are falling over each other to welcome customers. Finding a property too is easy— newspaper supplements and websites are choc-a-bloc with ads of real estate on sale. So, what’s the problem? If anything, it is deciding whether to buy an independent house or a flat. Investors in property have always faced this dilemma.

Both options have plus and minus points. If you buy independent land and assuming that all goes well, its value will only appreciate with time. However, the value of the building standing on that land is bound to depreciate. Or at least the value of the investment won’t appreciate as much as a plot would. In case of an apartment, that depreciation will be more pronounced because unlike in an independent house, the owner would not be able to make alterations or additions in the structure.

LAND PRICES IN METROS

Kolkata & suburbs
East
Rajarhat: Rs 2,600-5,300
South
Garia: Rs 1,500-2,600

Ahmedabad & suburbs
North
Wadaj: Rs 700-1,300
Ranip: Rs 600-1,100
East
Saraspur: Rs 800-1,200
Bapu Nagar: Rs 900-1,500
West
Thaltej: Rs 900-1,400
Paldi: Rs 700-1,300
South
Jamalpur: Rs 700-1,200
Dani Limada: Rs 500-1,000

Mumbai & suburbs
Harbour
Chembur: Rs 17,000-24,500
Navi Mumbai
Airoli: Rs 4,700-5,600
Vashi: Rs 7,500-10,000
Western suburbs
Vasai: Rs 2,800-5,500
Virar: Rs 3,000-6,500
North
Mira Rd: Rs 3,000-5,000
Thane: Rs 2,200-5,000

Delhi & suburbs
North
Kundli: Rs 1,800-2,500
Alipur: Rs 2,250-3,000
East
Ghaziabad: Rs 2,200- 3,200 Noida: Rs 4,000-9,000
West
Najafgarh: Rs 6,000-8,500
Dwarka: Rs 7,500-12,500
South
Gurgaon: Rs 3,800-12,000 Faridabad: Rs 2,200-4,000

Chennai & suburbs
North
Ambathur: Rs 2,200-5,500
Avadi: Rs 1,800-4,200
South
Medakkam: Rs 2,000-5,500
Thoraipakm: Rs 3,500-8,000
West
Ponamalee: Rs 1,900-4,200

Bangalore & suburbs
North
Bellary Rd: Rs 2,500-5,000
Yelahanka: Rs 1,800-4,500
East
KR Puram: Rs 3,000-7,200
Kodugadi: Rs 1,100-1,800
West
Hosur Rd: Rs 2,100-6,500
Tumkur Rd: Rs 2,000-6,000
South
BTM Layout: Rs 4,500-8,000
Sarjapur Rd: Rs 4,000-9,500

Also, the ownership of the land is not defined. Sure, a resident owns an apartment in the complex but no portion of the land can be separately demarcated as his own. This also means that any rise in land prices will not be fully reflected in the prices of apartments.

Instead, other aspects such as location, accessability and infrastructural improvements will become the triggers of growth. “Location is the main aspect that drives up prices of old apartments. But even independent land can have locational advantages,” says Anuj Puri, managing director, Trammel Crow Meghraj.

Do investors stand to gain more if they invest in independent land instead of an apartment? “Investing in independent land is definitely a better bet than investing in apartments,” says Kamal Taneja, managing director of Taneja Developers and Infrastructure. “Everything ages and degenerates but land prices rarely go down.” The rise in property prices across cities over the past three years bears this out.

While prices of apartments around city centres have appreciated by 100-150% during this period, land prices even in peripheral areas have jumped up 200-300%.

Independent houses also offer privacy. You don’t have to share common spaces with anyone. In apartment complexes, where every resident has equal right over corridors and staircases, your privacy can go for a toss if you have nosy neighbours. You are forced to be accommodative of pesky children and uncouth behaviour. Of course, you can cut all that out if you have an independent house.

It may be argued that apartments offer better security than independent houses. That is true to a large extent. Resident welfare associations of apartment complexes are better organised and there is a greater interaction between residents, unlike in the case of independent houses. Also, the entry into apartment complexes is regulated and security arrangements have fewer loopholes.

But the emergence of gated communities and integrated townships means that even an independent house is now as secure as an apartment. Someone buying a plot in a gated community will not only have access to basic infrastructure like roads, sewage and water but also enjoy all the amenities that are extended to residents of modern apartment complexes. “Plots get sold first in a project like ours where buyers can work on the construction of their house alongside other facilities being constructed in the project,” says Taneja of TDI.

Though there are several benefits of investing in a plot of land, apartments also have their plus points. For instance, you get property in which you can move in immediately. Even if the objective is merely investment, an apartment can be rented out for additional income. You can’t do that with a plot of land.

Also, many people invest in plots in far flung areas anticipating a boom in prices when some infrastructural or real estate development takes place there. “If the anticipated development fails to materialise or if the location does not receive water or electricity supply, the value of the plot will fail to appreciate,” cautions Puri.

There are other problems too. Plots of land need to be safeguarded against encroachments and illegal occupation. Leave it unattended for long periods of time and some unscrupulous dealer might do a Khosla ka Ghosla on you. In an apartment, you can rest assured once you have locked the main door and secured all the entry points. Most real estate frauds also happen in case of plots of land. With property prices heading northwards, the stakes have multiplied manifold.

For instance, it was recently discovered that the same plots of land in Muthirapalayam in Chennai were sold to several people. The victims of the scam, including rich engineers and doctors, are now fighting legal battles for the possession of the land. The scam happened because the plots were not clearly demarcated at the time of selling. Such incidents of real-estate frauds are common, and often the victims are well-educated urbanites who are completely illiterate when it comes to land ownership papers. The problem is underlined in Dibakar Banerjee’s film Khosla ka Ghosla, where a pensioner fights to get back his land from a crooked broker who usurps it by forging documents.

When he was buying property recently, Banerjee hired several lawyers to oversee the deal. “Many people who saw my film said ‘My God, this is exactly what happened in my case too’,” he says. There are other reasons for investing in a flat. You don’t get any tax benefit on the repayment of a housing loan for a vacant plot. The tax sops are extended only if the loan is used to buy or build a house. Also, the sale proceeds of a vacant plot attract a higher tax. In case there is a structure built on the plot, it is deemed to be a house. So people often build just one room to escape the tax net.

But don’t let such horror stories dissuade you from buying a plot or an independent house. A plot has its own benefits. Many people find the prospects of building a house too daunting. Not for them the running around for approvals, finding an architect, getting a contractor and overseeing the construction. But the compensation of undetaking these hassles and efforts are that they can build a house of their dreams, customising it to their tastes and requirements.

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