Despite the inclination of homebuyers to buy residential apartments, plots will remain a popular choice because of a higher capital appreciation. Are you interested in investment in a residential plot? If yes, read on to know the advantages and disadvantages of plot as an investment option.
In India, plot investments continue to be the most popular type of investment although other investment options such as equities and mutual funds have gained popularity too. According to studies and reports conducted, land is the only asset that has witnessed maximum capital value appreciation in the past 15-20 years as compared to any other investment option. With habitation expanding to peripheries in order to cater to an ever-growing population, most outskirts have transformed into goldmines in terms of investment.
Traditionally, investment in plots was done by wealthy individuals and companies. However, with the rise in disposable income, many young professionals have started considering plots for making a second investment. A plot of land today is considered to be a key asset which can either be sold or shared for future development gains, without having the need to purchase the land like many builders and developers are doing in the current scenario, he adds.
However, before investing in a plot, you should keep in mind the following pros and cons in mind:
Advantages of investing in a plot
As compared to residential projects, the cost of purchasing a piece of land is comparatively lower and hence, more affordable. Further, a buyer gets immediate possession of the plot.
Residential plots have better resale value as compared to residential properties, especially for people who are interested in building individual houses or villas according to their preferences, needs and taste. Since land is considered to be a tangible asset unlike stocks and equity and because of constant increase in demand and limited supply, one can be assured of booking high profit.
Investment in land is a very simple and transparent process and is not as complicated as compared to investment in shares and stocks. In addition, property tax of plots is lower compared to residential properties. Also, there no need to save for maintenance of plots. Further, as the plots do not generate rental income, you do not need to worry about letting out to tenants. Instead, you can lease the land for allotment, tenant farming or parking lot depending on the feasibility of the site.
Build your dream home
Since, plots are available in all sizes and in many locations, you can invest in a plot that you like and can plan to build a home on it after a few years, once you accumulate enough funds for construction.
Disadvantages of investing in a plot
No short-term gains
One of the major notable drawbacks of investing in land is that there is no short-term gain of cash flow as compared to residential units since appreciation of the land is dependent on various factors such as present market scenario and infrastructure development among others.
Encroachment and land acquisition issues
There are many cases where the lands have been encroached, leading to adverse possession. This could possibly lead to your legal right getting jeopardized, resulting in litigation and excessive legal costs which can outweigh the appreciation in terms of your land value. Further, there is always a risk of government acquiring your land for carrying out infrastructure development. While the government does offer compensation in return, but it may not be satisfactory. A good example is of recent land acquisition case in Noida Sector 107 where land owners demanded higher compensation.
No financial aid from banks
While purchasing a house, you can avail loan from the bank. The bank usually offer 80 per cent loan based on the value of the property. Further, if you build a house on the plot, you can avail composite loan which covers plot as well as construction cost. However, banks do not provide financial aid if you plan to purchase a plot, unless it has been sanctioned by the development authorities of the states.
No tax benefits
You can avail tax benefits on interest as well as principal on availing home for purchasing a property under Section 24 and 80C of the Income Tax Act. However, you cannot claim tax benefits on the interest paid on the borrowed money for making plot investments.
Overall, land investment looks very enticing and more beneficial as compared to residential projects. Meanwhile, experts opine that whatever may be your purpose for plot investment, always conduct a due diligence check on the paper work to make sure you and your property are protected from fake registration and court cases. Hence, it is highly recommended that you hire or seek assistance from an advocate before making such investments.
Source: 99acres, Mar 30, 2023