Many city dwellers dream to own plots in the liveable areas of the city where they can build their dream homes. However, the apartment culture has had a significant boom. People are looking to buy apartments in city centers and business districts. This shift to the trend of apartment purchasing is partially accelerated by the lack of available land. As the amount of physical land is diminishing day by day, the portion of residential zone is shrinking in the cities. In recent years, the prices of both plots and apartments have soared up significantly. In 2022, it is a burning question whether someone should invest in land or an apartment for long-term returns? Let's find out.
Pros of Owning a Plot
This doesn’t necessarily apply to the developed areas of the city. From the context of Bangladesh, some areas within Dhaka might still be affordable but it is still not developed yet. What happens after development is something that will be discussed in the next point.
Compared to the apartments in city hubs, land prices in a more secluded area might still be comparatively less. There is virtually no maintenance cost and the property tax is also less.
Land prices tend to appreciate significantly. The appreciation happens at a much faster rate compared to apartments. When a community grows in an area or the transport system becomes easy, land prices tend to soar up. Compared to investment in apartments, the return on the plot will be significantly higher years down the line.
Most of the apartments require some form of down payment even before the construction begins. There are countless cases of construction taking years to finish leaving investors hanging dry. However, there is virtually no delay with the land property. It is as simple as changing the ownership after completing monetary obligations.
Land ownership provides freedom of choice. A person can build anything any way he or she likes. The apartment doesn’t provide this kind of flexibility. The choice of design, floors, material everything is in the control of the owner.
Cons of Owning a Plot
One of the common risks associated with land ownership is the government acquisition issue. There is no guarantee that the fated property will be taken away for civil development. Falsified documents or encroached land might land the buyers in year-long legal battles which is another hassle.
Land ownership costs a lot. Many banks and financial institutions provide home loans. But those are mostly limited to apartments or ready-made buildings. It is hard to get a loan for plots as the appreciation isn’t guaranteed to happen overnight.
There is a supply-demand inequality of land in city and suburban areas. There is a considerable demand for land in the city but the land is scarce. On the other hand, there are available plots in suburban areas but the lack of development deters buyers. As a result, there exists a significant price inequality.
Pros of Owning an apartment
An apartment is a readymade deal. Here the buyer gets a fully functional home without the hassle of having to actually build one. It is a perfect option for people looking to avoid the extra budget and trouble of overseeing the process.
An apartment can be a great source of passive income through renting. Considering the passive income opportunities, almost no investment comes even close to apartments.
Banks and financial institutions tend to favor apartments for housing loans. As a result, a person can easily put 20 to 30% of the initial sum as a down payment and repay the loan over several years. All the while enjoying the benefits of an apartment.
The return on investment starts right away if someone buys a readymade apartment. It can be a new family home or rental option, the value generation from apartment investment starts almost instantly.
Cons of Owning an Apartment
It takes considerable time to find, select, assess and go through the details of a prospective apartment. Often the process can be tiring and time-consuming. If the apartment isn’t a ready-made one, there is also the added hassle of checking in with the real estate firm to inquire about the progress.
Apartments do not appreciate at the rate of the plot. The reason is that apartments are already built in areas that are developed or semi-developed. As a result, there aren’t any sudden changes that will see a significant change in the price of the apartment.
Unlike other forms of investments, apartments cannot be sold instantly. There are a long list of processes and negotiations underlying an apartment trade. It might take months or years to get an apartment sold after it has been made available in the market.
There is no guarantee that the apartment will have tenants all year round. There can also be other issues with unruly tenants. All of these factors can hinder the ROI of an apartment.
Apartment Vs Plot – Which is the Better Investment Option?
There is no direct answer to this. It depends on what the investor is looking for out of their investment. Three key aspects can be an underlying factor while choosing between apartments or plots – financial abilities, needs, and liabilities.
Apartments provide instant ROI without the hassle of having to build a house. Most of the time they are conveniently located and future-proofed thanks to the location. It also comes with its own set of financing benefits but the cost of purchase might be higher in some instances.
On the other hand, plots offer freedom and long-term gaining opportunity. It also holds a better appreciation prospect compared to apartments without any hassle for maintenance. But it does require a considerable sum upfront without any direct return instantly.
So it ultimately comes down to the personal choice and ability of the investor. Apartments can be a great choice for short-term gains whereas land ownership is a ball game for a long-term investor with a distant vision on ROI.
Apartment and plot both are good investment opportunities. Short-run and long-run gains aside, they both provide a secured investment channel. However, plots outweigh considering the steady return it will provide. With appreciation over time, it might even be profitable to sell off a plot in the long run. Regardless of the choices, the benefits are there in both forms of investments.