Category: Real Estate

Plot or a house?

Which is a better investment in property: Buying land or buying a residential house? asks a client

This is a very broad question!

Firstly investing in property “for investment purpose” should be considered diligently. Property growth as an asset class has been stagnant for the last 3 years especially in bangalore.

Second, when someone measures returns in property, it is crucial the time period of realisation of profits is considered to calculate returns. If your money has doubled in property in 7 years, well, nothing great, so has your Mutual funds and maybe equity.

Since there is no performance matrix in real estate, and since there is no daily/ weekly or monthly performance review(like financial assets) it is indeed difficult to track/ monitor growth.

Investing in property from the point of asset allocation(diversification) is good and care should be taken not to over invest in this asset class.

The objective of asset allocation is to ensure there is sufficient diversification among asset classes in an individuals portfolio to ensure an average return is met in differing market cycles and thus goal realization is achieved.

Since the property sector is not regulated by a regulator in India, like SEBI for Equity and investment products or IRDA for insurance, there is no scope to protect the downside risk or address grievances for customers except court notices which take years to get addressed!

Land as an investment would serve well in terms of appreciation.

There is a concept of depreciation which occurs in apartments, due to wear and tear/ maintenance costs and general upkeep of the property, like plumbing, painting etc.

However, the legal problems that come with land/ plot investments are far higher since the clearances/ titles and location, type of land, BDA/BBMP/BAYAPA/Revenue/ commercial approvals make the khata and registration process a nightmare.

Therefore, all this needs to be considered along with services of a property lawyer before a decision to buy land or apartment is made to check its authenticity.

Dilshad Billimoria
Chief Founder and Financial Planner.
Dilzer Consultants(ISO 9001(2008) Certified Company.