Buyer Guide: What to Buy? Different Property Types

Apartments

General features

Apartments have increasingly become the most supplied property type across cities in India. Their popularity can be attributed to reasons including but not limited to contemporary looks, modern-day amenities and better security. In addition, issues pertaining to water and power supply, and maintenance are usually taken care of by the developer. Thus, if you are buying a property for end use, apartments might prove to be the best option unless you want the liberty to design your own house. As these units are easily available, you also have plenty of options to choose from, depending on your budget, location and other preferences.

Scope of earning/income opportunities

In case you do not plan to occupy the flat immediately, you may put it on rent and revoke the burden of EMIs, if you have availed a home loan.

Another advantage of investing in an apartment over a plot or a house is its higher resale value and a wider buyer base. As demand for these units is usually the highest among all property types, it is relatively easier to find a buyer for your apartment than for an individual house or a residential plot.

However, the rate of appreciation of a flat may be lower than that of a plot. It is usually the price of the land that appreciates. Further, the structure may witness some degree of depreciation if you take into account the wear and tear over a period of time.

Tax implications

When you take a home loan to buy an apartment, you are entitled to some tax benefits. If the property is intended for self-use, you are entitled to get a tax deduction of up to Rs 2 lakh per financial year on the interest amount. In addition, a deduction of Rs 1 lakh is applicable on the principle amount paid.

However, one must remember that if you plan to rent out the property you have bought, the rent earned would be considered as income and would be taxable.

Plots

General Features

Plots are preferred by those who seek the freedom to construct and design their homes on their own and by investors who need meaty capital growth on the amount invested. If you plan to use the plot for constructing a home, you must have a strong financial backing as you end up paying for the land, construction, architects, designers and labour cost. It is also a challenging and time-consuming task to buy a plot and build a home. Banks do offer loans for plot purchases but the terms and conditions are different and relatively stern as compared to the purchase of an apartment.

For instance, the maximum loan limit available for purchasing a land is usually lower than the amount available for constructed structures. This implies that you might have to shell out a larger amount of money as down payment when buying a plot. 

Scope of earning/income opportunities

Unlike apartments, you cannot put plots on rent unless you construct a home on it. However, it is believed that plots provide a higher rate of capital appreciation as compared to built structures. This holds true when the market is lucrative and the demand is higher than the supply. 

Tax implications

When you take a loan to buy a plot, you are not entitled to avail any tax exemptions. You can avail tax deductions only if you construct a house on the plot. In this case too, the tax deduction is applicable only for the loan amount taken against construction and can be availed only once the construction is over. 

Further, in case the plot you invested in is more than 500 sq. meter in area and is kept vacant, you have to pay wealth tax for it.

House/ Villas

General Features

Independent houses or villas are preferred by those who want the privacy of an independent unit but also want to avoid the hassle of constructing a home. One of the major drawbacks for these units is the lack of security and power and water backup, which is usually offered by society complexes. However, today, developers are offering these units in gated communities with individual as well as shared amenities.

Scope of earning/income opportunities

When it comes to independent houses or villas, capital appreciation might not be as high as a plot or even an apartment. This is largely due to the high initial capital involved and the limited demand as compared to apartments.

Monthly rents for such units is usually way higher than apartments. However, due to the high price tag associated, it is difficult to find tenants.

Tax implications

Tax implications are same as that of apartments.

Studio Apartments

General features

A studio apartment is a small apartment which contains a bedroom, kitchen, and living area in a single room. The need to own a piece of real estate has brought this residential format to the limelight, particularly among single working individuals.

Scope of earning/income opportunities

The rental returns from a studio apartment are usually higher than even a two or a three-bedroom apartment. This is mainly because these are fully furnished and come with more facilities than regular flats.

Studio apartments have a good appreciation potential on capital values. With the growing migration towards IT/ITeS driven cities, the demand for studio apartments has witnessed a significant rise in the last few years.

Tax implications

The tax deductions that you can avail on regular apartments apply to studio apartments as well.

Serviced Apartments

General features

A serviced apartment is a type of furnished apartment available for short-term or long-term stays, which provides amenities for daily use. Serviced apartments can be less expensive than equivalent hotel rooms. Since the beginning of the boom in information technology in the country and affordable international travel, this segment of real estate has witnessed a marked rise in its demand.

Scope of earning/income opportunities

Compared to residential projects, serviced apartments offer strong returns with relatively low risk. Serviced apartments are a secure investment as they allow you to earn a fixed rental income. You can avail a long-term lease that would call for nominal management and maintenance.

Tax implications

The tax deductions that you can avail on rental apartments apply to serviced apartments as well.

Vacation Homes

General features

Investing in a weekend or vacation home is a trend that has picked up steadily over the last few years. With higher disposal incomes, people are able to afford more than one property, especially in a location that will serve as a vacation home during annual family holidays.

Scope of earning

A major advantage of investing in vacation homes is that you can make more rental income through them. If you choose a good location, vacation homes tend to attract many travellers and tourists during the peak season of that area. The rental income earned can be used to pay the mortgage and other property related expenses.

Tax implications

The interim Finance Minister abolished income tax on rent from the second house, benefiting those with two houses, given that there is no outstanding loan on the second one.