Real estate is one of the best-known avenues to create wealth. So if you are a first-time investor or want to add a new investment to your portfolio, you’re likely wondering about buying a piece of land or an apartment. Both assets have their own pros and cons and it’s ultimately about your personal goals, investment risk and the returns you anticipate.
A look at land as a real estate investment Land as a property investment has enduring appeal as the resource is finite.
Land Investment: The Pros
1. Strong possibility for high capital appreciation As it’s argued that land offers the best potential for capital appreciation-by acquiring new developments, increase in population density, and growing need for space within an area, land on the outskirt of an upcoming or existing highway, industrial sector, or housing colony, has great appreciation potential.
2. Low maintenance cost A plot of land involves practically zero maintenance charges as compared to an apartment which will require timely repairs and maintenance, society charges, repair bills and handling of tenant issues.
3. Flexible use of land The use of land can be diversified at any future stage – be it residential, commercial or industrial. Later on, it can be sold at a higher value.
4. Low depreciation Risk A depreciation that arises due to the wear and tear of a building does not apply to land that can be kept for a very long period of time.
Cons of investing in land – no regular rental income – requires a long holding period – it is critical to be vigilant about the title and legal verification – there are likely to be issues with liquidity. A look at apartment as a real estate investment Apart from a house or villa, an apartment is the most favoured real estate investment, particularly for investors in metro and urban cities. A purchase of an apartment has two-fold utility as it is ideal for investment and personal use, along with receiving rental income.
Apartment Investment: The Pros 1. Regular rental income Buying an apartment gives the owner the comfort of receiving rental income, apart from its capital appreciation potential over time.
2. Easy loans readily available Apartments are readily available to purchase using banks and financial institutions that can sanction loans and finances with a relatively low rate of interest.
3. Apartment utility The benefit that one receives upon purchasing an apartment is that it can either be used for personal purposes or rented out.
4. Liquid nature of apartments There are usually a lot of buyers available for an urban apartment and there won’t be too many problems in finding a buyer for the property, especially in metro cities that are in the growth phase.
Cons of investing in apartments – Apartment can lose value over time due to depreciation – maintenance charges can be difficult to deal with – loss of tenant may mean no rental income – rental yields may not be as high as land. A comparative look at returns – Land Vs Apartment Capital appreciation Although capital appreciation is the prime goal for both investors, while considering long term appreciation of an asset; land clearly leads apartments by a substantial margin. In areas where development is picking pace and infrastructures are being built, land value can be multiplied in just a few years. For example, over the last 10 years land prices in developing areas like Mumbai and Delhi have increased in multiples due to the addition of roads and transport infrastructure. Winner: Land Rental Yield Apartments have a significant advantage over land for steady income generation. Apartments usually have a regular rental income, and their annual rental yield often ranges between 2-5%, depending upon the locality. However, land can be leased out at a low cost for either farming or for parking. Winner: Apartment Maintenance & Ownership cost While land needs little maintenance, you have to bear society maintenance charges, repair costs and payment of building taxes for an apartment. Winner: Land Risk Factors When it comes to land the greatest risk lies in investigating the title and legal verification for which one has to be careful, while apartments, if bought from reputed developers, generally minimize such issues. Winner: Apartment Long Term Wealth Creation A long term wealth creator, strategically placed land in a fast-developing area is always superior to an apartment.Land in the span of 5-10 years is more likely to yield great returns as compared to an apartment in the same tenure.Winner: Land Which Is A Better Option For You? Considering performance over the last decade, land is seen as the preferred asset, especially if your aim is wealth creation instead of income generation. Buy Land if: – you are expecting a substantial capital appreciation over a long tenure – you can afford to buy and hold the asset for over 5-10 years – you prefer hassle-free maintenance – you are buying land in a developing city that will soon see significant appreciation – the cost is not a concern Land is preferred by: – investors aiming for a regular monthly income – investors who are willing to take up immediate personal use along with it – buyers with ease of accessing loans – those who seek an investment with more predictable returns. The Rising Trend of Plotted Development With a rise in plotting, it is becoming the preferred method of investing by many who seek the capital appreciation benefit of land with planned infrastructure and development. Due to growth in industry corridors and infrastructure being developed, places like Sonipat are attracting many investors seeking appreciation and higher connectivity. Conclusion: Though it is completely your personal decision to choose between buying land and apartments, land if bought in an area with good growth potential and held on for a substantial number of years will always provide better returns as opposed to an apartment especially regarding capital appreciation. On the other hand apartments are great for generating rental income and can be put to immediate use, also in terms of legal aspects it has lesser complexities than land. You must invest time in evaluating all your financial targets and investment plan.
