Buying a plot of land or an apartment? Find out which one serves you best
Saving up to buy property takes commitment and a lot of sacrifice. When the time is finally right to invest, home buyers are now faced with a real conundrum; to buy a plot or an already built house. All the options are viable in their own right, but you want to go with what works best for your situation.
There is a lot to consider apart from one’s own preferences and desires, because it’s not a small investment. Furthermore, the decision you make has long-term implications which you have to consider carefully so that you don’t end up cursing yourself.
Here is what you need to think about, whether looking at land for sale or apartment for sale:
Cost of investing
It goes without saying that this would be the first thing to consider when thinking about owning a property. Property prices are influenced by many factors such as location and size. In most cases it is cheaper to buy a plot than it is to buy an apartment. You should, however, consider how much it will cost you to erect a building on the piece of land. In the case of apartments, you are buying a house that is ready to live in and there is no more real expenditure after you complete the buying process.
How it appreciates in value
The main thing to consider here is the location. It is the single factor that mostly determines how the piece of land will appreciate. In stable markets, the plot will rise in value much faster. The main reason is because it is easier to develop a plot than build a structure. As such, the value of your investment will rise faster within a short time.
The metrics of supply and demand also play in favor of plots. It’s a given that land becomes scarce over time. The scheme of things in such scenarios is that, plots appreciate faster in value than apartments. Land is not subject to the law of diminishing returns. Unlike plots that have a variety of options when it comes to building, apartments are limited to their layout. Moreover, apartments rise in value over a certain period of time and then start to diminish because of factors such as dilapidation and changing market trends.
While it may seem that a plot is the best option due to how it appreciates, you still have to consider location. Most people will buy plots according to predictions about growth of the place which is followed by a rise in demand for land. However, if the infrastructure around the place does not develop allowing a town to materialize as expected, then things go south.
Land ranks terribly when it comes to income generation. Renting out land does not fetch much of an income. On the other hand, apartments are ready to go as soon as they are complete and you can get 3-5% of the property’s value in rent each year. You couldn’t possibly get that much if you just had land with nothing on it.
Renting out land can also become tricky if the tenant takes things to court. The land will stay without generating an income through this time.
Taxation and help from banks
In these two instances, taxation is different. When you borrow from the bank to buy an apartment, the process is easy; what is more, you are entitled to some tax deductions if you buy an apartment. You get tax deductions on interest paid on the loan for a financial year. You also get tax deductions for settling the principal.
When you buy land to build a house, you are also eligible for the same tax exemptions but these are only accessible from the year the house is finished. If you buy the land and have no intention of building on it then there are no tax exemptions available unless you rent it out. You will have to pay wealth tax on the land if it lies in an urban area and exceeds the size- in square meters, allowed by the council for tax exemption.
Other risks involved
It is important that you know what you are getting yourself into before you make the move. Apart from the issues that arise directly from the choice you are going for, there are external factors that play in. Most property fraud happens when dealing with land. There is a high chance of encroachment when the land is vacant. Secondly, plots are known to be sold to multiple owners, when this gets to litigation the land remains dormant.
What is your comfort zone?
After you have weighed all the options and found your stance in every aspect, it is important to think about what you want. When you choose to buy an apartment, you are freed from the hustle of finding an architect, running around seeking the requisite council documents or dealing with contractors. You get the house ready to move into. Apartment owners also enjoy services such as power backup, pools, fitness clubs and such which improve the quality of life. Buying a plot means you will have to forego all of these and build everything for yourself, which is not a small investment.
Before you can delve into property investment, you need to find the right people to deal with through the process; people with a track record. This ensures that you get a fair deal no matter which route you choose to take. For buyers who don’t intend to keep the property for long then an apartment is the right choice. The factor of depreciation becomes negligible if the apartment is not kept for a long enough time for depreciation to take effect.
When you think about it though, there is a sense of possession that comes with building your own home from scratch. Everything is designed as you like it and you can start immediately you acquire the land.
Each decision promises to have long term and short-term benefits, sometimes one outweighing the other. However, whatever one option loses in terms of the immediate benefits, it makes up for in long-term gains. Therefore, it all lies in your requirements
Written by Rawlins GLAM