Land and house offer substantial gains but have their disadvantages too, says Srikala Bhashyam
Meena is a 40-year-old professional looking for fresh investment opportunities. She has already invested in a property and has made handsome gains. She has not been able to decide whether she should go for land or should invest in another flat/house. In fact, this has been the challenge for many investors.
While both land and house offer substantial gains in the long run, both have their disadvantages too. Investment in a flat assures regular cash flow in the form of rent whereas land does not ensure any liquidity. So, the choice of product largely depends on the liquidity needs of an individual. However, you need to keep various other factors in mind, particularly in the current scenario.
One of the biggest concerns associated with land purchase in recent times has been the authenticity of documents. As you are aware, often, land transactions are predominately carried out by individuals, unlike a constructed property. As a result, buyers need to exercise caution while going in for a land deal. While land or sites developed by institutions carry lesser risk, make sure to go in for legal help to check out the authenticity of the documents. Though risks are higher in case of land, the returns are also higher and hence this has been a carrot for many investors. However, the amount invested in land does not offer returns though the prospects of capital appreciation are higher. Even in the current scenario, the probability of a vacant land offering higher returns when compared with a flat is much higher.
On the other hand, a flat or a house offers returns in the form of rent but in the current scenario, this has come down drastically, because of the higher interest costs and increased supply of flats. Investors, however, should keep in mind the fact that a constructed property also requires maintenance and repairs which can lower the overall returns. If you are looking for investing in a property to boost your monthly income in the near future, it may not be a smart idea. On the other hand, those who are looking for capital appreciation with a 5-10 year view can go in for property.
In recent years, this has been the primary driver for investments in property. As you are aware, loan taken for the purchase of land does not offer any income tax benefit. However, those who want loan for the purchase of land can look at composite loan and go in for construction within a stipulated time. With Reserve Bank of India's guidelines, not many banks are ready to offer loans for the purchase of land. For those who invest in property through home loan, the tax relief can be sought even if the property is rented out. In such a scenario, the rent received from property is set off against the interest cost and when the later is higher, the investor can show the difference as loss of income from house property.
In the initial years of property purchase, this benefit is likely to be available to many as rentals tend to be lower.