Apartment vs Plot: What Should You Buy?

With prices rocketing, jitters about interest rates and delayed possession, there really has never been a more nail-biting time to dabble in the Indian real estate market. Being one of the biggest emotional decisions that a person takes in a lifetime, it is undoubtedly the ‘most’ tedious experience that one goes through. This is mainly because property buying is a journey which involves a plethora of dilemmas. One of the biggest being: Apartment vs Plot.

Since each type of property has its own advantages and disadvantages, for ease of understanding, we will try to draw a comparison based on various parameters.

Convenience

• In apartments, one is saved from hassles such as hiring an architect, seeking approvals from local bodies, dealing with contractors and more importantly thinking-through as these things are taken care by developers. Moreover, apartments offer freedom from the hassles of everyday civic problems, ranging from water cuts to living with the stench of unpicked garbage cans.
• Talking about plots, one need to understand that there are two categories: i) plots within gated communities provided by developers, ii) Plots in layouts or plots offered by local authorities. Now, if you are planning to construct a home on a plot by local authorities or in layouts, be ready to be on your feet. However, in gated communities, one can avail all the facilities that are available within the complex.

Flexibility

• While buying an apartment, one has to put one’s creativity at rest to some extent.
• In plots you can choose designs based on your budget. Even if you cannot afford to build a home now, you always have the opportunity to build one in future.

Privacy

• Unlike apartments, plot owners need not share floor space with others. They get complete privacy while living in a community.

Amenities

• Most of the apartments come decked with facilities such as power backup, maintenance and security. In addition to these, one can also avail amenities such as club house, swimming pool and gymnasium.
• Plots in gated communities have access to all the facilities and amenities within the complex, while in the other case, accessing amenities and support infrastructure becomes a problem.

Cost

Buying a plot is relatively cheaper as the overhead costs are less when compared to apartments.

Undivided Share of Land

Apartments also offer undivided share of land.  Yes, you heard it right. An undivided share is a share of land allotted to every apartment buyer while purchasing a property, which is registered in the name of the owner. In an apartment, buyer is entitled to two things: the constructed building and the proportionate share of land, on which the building is constructed. Since the value of constructed apartment depreciates over time, the appreciation of the property is the actual appreciation of the land and not the building.

Appreciation Potential

• Land being a tangible asset, chances are that appreciation potential is higher in plots when compared to apartments. However, it depends of several factors such as location, availability of trunk infrastructure, etc.

Maintenance cost

• While the idea of owning land itself is pleasing for many, but basic facilities are hard to find unless it is a gated community developed by a builder. Due to scarcity of land in the city centre, these plots are usually located in far-flung areas. Thus, security and maintenance become a colossal problem. Moreover, from water to security, everything has to be borne by the buyer.

Possession

• One of the critical risks most apartment buyers face today is whether they will get possession as per the date promised by builder. When the possession is delayed, it has multiple effects like paying pre EMI interest, losing income tax benefit, losing rental income etc.
• But plot owners face less of such risks as in most of the case the possession is on time.

Taking a Loan?

• Apartments

While taking a loan for an apartment, a first time buyer is entitled to certain tax deductions. Here is a snapshot.

Repayment of Principal Amount: ‘Repayment of principal amount’ makes you eligible to claim a deduction up to a sum of Rs 1,50,000 under Section 80C; and that benefit is available with you immaterial of the fact whether you stay in the same property (Self Occupied Property – SOP), or have let it out on rent (Let Out Property – LOP).

Payment of Interest: As far as the ‘payment of interest’ amount (for the loan amount availed) is concerned, it is available for deduction under Section 24(b). In the budget announced in July 2014, the new Government increased the deduction limit on interest payment of a home loan on a self-occupied property from Rs 1.5 lakh to Rs 2 lakh.

However, if you have let out the property on rent (LOP), then the actual interest payable is eligible for deduction, thus not being subject to any maximum limit. This applies even in the case where you have two home loans for two different properties, where one is self-occupied and the other is let out on rent.

• Plots

ü  For plots, the tax deduction on interest is available only from the year the construction is completed.

ü  Interest accrued during the construction period can be claimed as deduction over five years in equal instalments starting from the year the construction is completed. Thus, in this case, the tax benefits are delayed.

ü  The interest paid on any loan for purchase of plot which is vacant is not qualify for tax deduction. However, if the plot is rented out, irrespective of whether the rental income is offered for taxation as ‘business income’ or ‘income from other sources’, the interest paid on any loan used to buy the plot can be availed of as deduction. There will be no tax benefit for repayment of the principal of such loans.