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Home / Money / Personal Finance /  Evaluate these pros and cons before buying a plot

Post pandemic, the preferences of homebuyers are changing. As the acceptance for work from home has gone up, many people are exploring options outside the crowded cities. Consequently, the demand for plots and plotted developments have gone up, as some people are preferring standalone houses against apartments in societies.

As per an Anarock report, cities like Bengaluru, Hyderabad, Chennai, Pune and Gurugram are seeing high demand for plots. The data from PropTiger DataLabs showed that out of the total sales of plots in top eight cities, Bengaluru contributed maximum sales with nearly 31% share, followed by Chennai at 22%. Buying a plot and developing it as per your own requirement may look like a good idea, however, one needs to weigh the pros and cons before making the decision. Here are some of the points that you need to keep in mind.

Greater flexibility: “A plot offers greater flexibility as the construction can be done as per one’s preference. In the case of flats, the scope for modifications and expansions are limited. Also, the buyer has the flexibility in terms of timing the construction as they can plan it as per the availability of funds," said Amit Raj Jain, head of sales, BPTP, an NCR-based developer. Also, in case you are buying a plotted development from a developer, the delivery risk is lower as not much work is required on part of the developer. In case of flats, the delivery risk is high as the developer has to fully construct the property and the number of approvals and clearance required are much higher.

We have seen a large number of projects getting delayed by developers in recent times.

Better appreciation: Generally, plots offer better appreciation. “Plots, in most cases, offer greater return on investment, especially against apartments. Add to this, as the apartment becomes older, its value either depreciates in comparison to its peak levels or remains stagnant. And, if somebody decides to sell and liquidate old apartment, it may prove to be difficult since many prefer to buy new properties," said Anuj Puri, chairman, Anarock Property Consultants.

Financing: In case of plots, you can avail a land loan, but the financing options are limited. The conditions and interest rates are similar to that of a home loan but the loan to value (LTV) ratio is generally lower. Therefore, you may have to shell out more upfront for plots. “The maximum LTV for plot loans is usually 70% against as much as 90% for home loans. Even if you avail funds for construction, the total LTV would be restricted to 80% of the plot value. This means that if you are considering buying a plot for either personal use or as an investment, you would have to shell out a minimum of 20-30% of the funds from your own pocket," said Adhil Shetty, CEO, Bankbazaar.com. Also, the loan tenure is lower in case of land loans.

“The maximum tenor of a plot loan can be up to 15 years against up to 30 years for a home loan. This means higher instalments compared with a home loan," he added.

No tax deduction on land loan: In case you take a loan to buy a plot, there is no tax deduction available. You can avail tax deductions on a loan taken for constructing a house on the plot but the tax deductions can be claimed only after the construction is complete. While in case you avail of a home loan to buy a ready-to-move-in flat or apartment, you can claim the income tax deduction of 1.5 lakh against the principal repaid and up to 2.5 lakh against the interest accrued during a year. Tax deductions effectively reduce the cost of buying a flat.

Things to Note

Like buying any other property, one has to ensure that the title of the property is clear. “One must do a thorough legal verification of the land title as there is a higher probability of litigation. There are various approvals and certificates (title deed, release certificate, encumbrance certificate, property tax receipts, etc) by local authorities that need to be checked and verified. One must also check and verify the land-use zone (of the plot in concern) as per the city master plan," said Anuj Puri, chairman, Anarock Property Consultants.

In case of agricultural lands, only a small percentage of the property can be used for house construction. In some states you need to qualify as an agriculturist to buy such land.

For lower risk of dispute on title and better security and amenities, one can also look at gated plots offered by some of the reputed developers. Also, gated developments offer better amenities compared to a standalone plot. Also, building a house on your own requires a lot of time and effort but may help you save some money compared with buying a plotted development from a builder.

If you are planning to buy a plot, evaluate the property in terms of the future growth prospects, that is if any infrastructure project is coming in the nearby location and how good is the connectivity. Better connectivity and upcoming infrastructure projects increase chances of value appreciation of plots.

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