Land or Flat?

LAND: PROS amp; CONS

Let us evaluate land as in investment on six parameters in what follows:

Cost: The cost of land depends on locality,size and availability of space.

Value appreciation: With availability of space becoming a constraint in every city,land is expected to appreciate quickly. Flexibility of option to build as per future requirement helps the cost of land and property to increase very fast.

Risk factor: Land is prone to litigations,and once the process sets in,it is very difficult to get out.

Bank Assistance: The buyer has limited options to leverage financial position for buying land as banks usually do not provide loans for land purchase. Even if some cooperative banks do,the tenure is limited and the loan-to-value has a ceiling of usually 60 per cent.

Income source: Land generates a very low income if rented,and sometimes it is difficult to reoccupy the land if the tenant pushes the property into litigation.

Liquidity and future prospects: Land is always in great demand. The value normally appreciates immediately due to zero depreciation.

ADVANTAGE FLAT

Let us evaluate a flat purchase on the same parameters.

Cost: Depends on locality,services,accessibility,size,design and developers brand.

Value Appreciation: A flat has a limited life span,so its value has a diminishing effect. After a certain period of time,there is stagnancy in growth. Lack of flexibility in use,modification and expansion are hindrance to a quicker growth as compared to land.

Risk: Delay in possession is one of the most common problems. Quality is often compromised by the developer to control the cost and meet the deadline,so the life of flats gets reduced.

Bank Assistance: Its very easy to take a bank loan for buying a flat.

Income source: Flats generate good rental income once given on rent. There is less chance of litigation with clear laws in place.

Liquidity and future prospects: The depreciation on construction reduces the growth rate,therefore its value grows at a diminished rate in comparison to land.

No doubt a land has an advantage of assured returns,but it usually needs investment in full and there is no choice of taking leverage on the fund hence overall return is limited to a point. Flats are very easy to buy and an investor can take leverage to fund its purchase,and returns are good.

The other big problem could be the strengthening interest burden while one invests in multiple flats on a leveraged financial position at a time when there is a slow-down in the economy. The land investor,however,does not need to worry in such a situation.

Focus on needs

To judge the best investment avenue between a land and flat,one should first focus on ones own requirements. If the investor wants to use the property for the his personal use,then land could offer an advantage of usage flexibility and handsome value appreciation in the long run. However,if the investor wants to resell the property after a short period then it is more profitable to take a position in flats. As an investor is not required to hold the flat for a long term,it also eliminates the depreciation factor. If the investor is a senior citizen or someone who cannot devote much time to maintain the property then again it is advisable to take the choice of a flat over land.

The author is CEO,BankBazaar.com