Plot vs house: Which should you buy?

When it comes to real estate investments, deciding between buying a plot of land or an already constructed house can be a challenging decision. Each option comes with its own set of advantages and considerations that can significantly impact your lifestyle and financial goals. While purchasing a plot offers flexibility and the potential to build a home that perfectly matches your vision, buying a house provides immediate convenience and a ready-made living space. This article explores the key factors to help you determine which option best suits your needs: a plot or a house.

Pros and cons of buying a plot

A plot refers to a piece of undeveloped land where you can build your own home or develop it according to your preferences. Unlike purchasing a pre-constructed house, buying a plot gives you complete control over the design, layout, and other specifics of the property. Here are the advantages and disadvantages of buying a plot.

Advantages of buying a plot

• Complete customisation: One of the main advantages of buying a plot is the flexibility it offers. You have the freedom to design and build your home exactly as per your preferences. From the architectural style to the number of rooms and landscaping, everything can be tailored to your specific needs. This level of customisation is rarely possible when purchasing a pre-constructed house.

 

• Low initial cost: The initial cost of purchasing a plot is generally lower than that of buying a fully constructed house. This makes it a more affordable option for many buyers. You can purchase the land now and wait to build the home when your finances allow, reducing the upfront financial burden.

 

• Cost control: Building a home on a plot allows you to control the construction costs. Unlike buying a pre-built home where the price is fixed, with a plot, you can phase the construction based on your budget. Additionally, you can choose materials, contractors, and designs that align with your financial plan.

 

• Potential for appreciation: Plots, particularly in developing areas, often appreciate in value faster than houses. As infrastructure and amenities grow around your plot, the value of the land can increase significantly. This makes it a strong investment option, especially for long-term gains.

 

• Flexibility in construction timeline: When you own a plot, you have the option to build whenever it suits you. There is no immediate pressure to start construction, giving you the flexibility to plan your finances and the project at your own pace. This is ideal for those who want to secure land now but build at a later stage.

 

• Fewer maintenance concerns: In the case of an empty plot, there is little to no maintenance required compared to a constructed house that requires regular upkeep. This makes it a hassle-free investment until you decide to build on it.

 

• Ideal for future expansion: Buying a plot gives you the flexibility to expand your home in the future as your family or requirements grow. Unlike purchasing a house where space is limited, a plot allows you to add more rooms or amenities without the constraints of an existing structure.

Disadvantages of buying a plot

• Delayed occupancy: Unlike buying a ready-to-move-in house, purchasing a plot requires a significant wait before you can start living on the property. Construction takes time, and the entire process- from obtaining permits to hiring contractors and completing the build- can span several months or even years.

 

• Additional construction costs: While the initial cost of a plot may be lower, the total cost, including construction, can often surpass the price of a pre-built house. Expenses such as labour, materials, architectural fees, and approvals from local authorities add up, making it a more expensive endeavour in the long run.

 

• Legal and regulatory hurdles: Acquiring a plot comes with the challenge of navigating through complex legal and regulatory processes. You will need to verify land ownership, ensure clear title deeds, and obtain various permissions from local bodies before starting construction. These legal formalities can be time-consuming and challenging.

 

• Difficulty in financing: Obtaining a home loan for a plot is more complicated than for a pre-built house. While banks offer loans for plot purchases, the terms are often less favourable, with higher interest rates and shorter repayment periods. Additionally, construction loans are required separately, further complicating the financial process.

 

• Project management stress: Managing the construction of a home can be a stressful and time-consuming process. You are responsible for overseeing every aspect, from selecting contractors to ensuring materials are delivered on time, which can be overwhelming, especially for those without prior construction experience.

 

• Security issues: An empty plot can be vulnerable to illegal encroachments or squatters, especially in areas where land disputes are common. You may need to take extra precautions, such as fencing the plot or hiring security, to protect your investment until you begin construction.

Pros and cons of buying a house

When you buy a pre-constructed house, you are purchasing a ready-to-move-in living space, eliminating the need for construction and the associated hassles. This option provides immediate access to a fully functional home, with the essential infrastructure already in place. Houses come with built-in conveniences and are located in established neighbourhoods, often providing access to basic amenities like schools, hospitals, and markets. Let’s explore the advantages and disadvantages of buying a house.

Advantages of buying a house

• Immediate possession: One of the most significant advantages of buying a house is that you can move in immediately after the purchase. There is no need to wait for construction or navigate the complex process of building. This makes it an ideal option for those who need a home without delay.

 

• Established infrastructure: Houses, especially in developed areas, are often part of well-established communities. They come with access to essential amenities like water, electricity, roads, schools, hospitals, and public transport. This means that you can enjoy a comfortable lifestyle from the moment you move in.

 

• Easier financing options: Banks and financial institutions offer a wide range of home loan options for buying a house. These loans generally have favourable terms, including lower interest rates and longer repayment periods. Unlike plot purchases, obtaining financing for a house is more straightforward, making it easier for buyers to secure their dream home.

 

• Lower stress and time commitment: Buying a pre-built house relieves you of the stress involved in managing a construction project. There is no need to coordinate with architects, contractors, or suppliers, nor do you have to worry about delays or cost overruns. The process of purchasing a house is relatively smooth, requiring less effort from the buyer.

 

• Ready-to-use facilities: When you buy a house, you are investing in a property that already includes basic facilities such as a kitchen, bathrooms, plumbing, and electrical work. Additionally, houses often come with landscaping, driveways, and boundary walls, which you would otherwise need to build from scratch with a plot purchase.

 

• Rental income potential: An important advantage of buying a house is the potential for generating rental income. If you do not plan to live in the property right away, you can rent it out to tenants, providing you with a steady stream of income. This can help offset the cost of your mortgage, taxes, and maintenance expenses. Additionally, houses in prime or popular areas often have higher rental yields, making them attractive investment options for buyers looking to earn passive income through real estate.

Disadvantages of buying a house

• Lack of customisation: One of the downsides of purchasing a pre-constructed house is that you are limited in terms of design and layout. Unlike a plot where you can build according to your vision, a house comes with fixed architectural features. Renovating or remodelling can be expensive and may not always offer the flexibility that building from scratch would.

 

• Higher initial cost: The cost of buying a house is usually higher than that of a plot. You are paying for both the land and the construction, which may be more expensive than purchasing a plot and building over time. This upfront investment can be a challenge for some buyers.

 

• Maintenance costs: Pre-built houses require regular maintenance, especially as they age. You may need to spend on repairs, painting or upgrading facilities over time. These costs can add up and may be higher than expected, depending on the condition of the house.

 

• Depreciation of structure: While land typically appreciates over time, the physical structure of a house tends to depreciate. Over the years, a house may require repairs or renovations to maintain its value, which can impact its long-term return on investment.

 

• Limited space for expansion: Unlike buying a plot where you can expand your home in the future, a pre-constructed house may not offer much room for extension. If your family grows or your needs change, you might face challenges in modifying the house to suit your new requirements.

 

• Older construction issues: If you are purchasing a resale home, you may encounter problems associated with older construction, such as outdated electrical systems, plumbing issues, or structural wear and tear. These issues can result in unexpected repair costs after the purchase.

Plot vs house: Factors to consider before your choose

When deciding between purchasing a plot or a house, several critical factors come into play. Your choice should align with your financial situation, lifestyle needs, and long-term goals. Here are the key factors to consider before making your decision:

 

• Budget and finances: Assess your budget carefully. While plots may have a lower initial cost, the overall expenditure for constructing a house can add up with construction, permits and materials. On the other hand, buying a house involves a higher upfront cost but eliminates the need for future construction expenses. Factor in additional costs like home loans, taxes, and maintenance when making a decision.

 

• Time and convenience: If you need a home immediately, a ready-made house is the better option as it allows you to move in without delay. Constructing a house on a plot can take several months to years depending on the project scale. If you have the patience to oversee the construction process and are in no hurry to move, buying a plot offers more flexibility in the timeline.

 

• Customisation vs ready-to-move-in: Buying a plot offers you complete creative freedom in designing your home to suit your needs and lifestyle. If customisation is a priority, a plot is ideal. However, if you prefer the convenience of a pre-designed, ready-to-move-in home with little involvement in the building process, purchasing a house is more practical.

 

• Location and appreciation potential: Location plays a crucial role in property appreciation. Plots in developing areas often appreciate faster due to rising infrastructure and amenities. However, houses in established localities may offer immediate rental income and stable appreciation. Consider the future growth of the area and its impact on property value.

 

• Rental income potential: If earning rental income is part of your investment plan, buying a house may be more suitable. A ready-made home can be rented out immediately, providing you with an income stream. With a plot, rental income is only possible after construction is completed, which could take years.

 

• Legal and regulatory aspects: Purchasing a plot involves navigating complex legal and regulatory requirements, such as title clearances, building permits, and zoning laws. This process can be time-consuming and requires thorough research. Buying a house typically involves fewer legal hurdles, as most formalities are already completed by the seller or builder.

 

• Future flexibility: If you anticipate expanding your home in the future, a plot provides flexibility for modifications or adding new features. A pre-built house, on the other hand, may have structural limitations that restrict future expansion. Consider your long-term vision for the property when deciding.

 

• Level of involvement: The amount of effort you are willing to invest in the property decision is a key factor. Buying a plot involves significant work, as you’ll be responsible for everything from obtaining permits to managing contractors and overseeing the construction. It requires time, energy, and careful planning. On the other hand, purchasing a ready-made house is far less work-intensive. The house is already built, and after closing the deal, you can move in or rent it out immediately. If you prefer a hassle-free process with minimal involvement, a pre-built house may be the better option.

 

• Tax implications: Tax considerations also differ between plots and houses. For instance, purchasing a ready-made house in India may allow you to claim tax deductions on home loan interest (under Section 24) and principal repayment (under Section 80C) if the property is self-occupied or rented. These deductions reduce your taxable income, offering financial benefits. In contrast, if you buy a plot, tax benefits are only applicable after the construction is complete and you start residing in or renting out the house. Until then, no deductions on interest payments can be claimed. Additionally, property tax rates can vary between vacant land and constructed homes, with homes generally attracting higher property taxes.

How to reduce the risks associated with plot purchase?

Purchasing land in major cities has become increasingly risky due to cases of fraudulent registration papers. Therefore, it’s crucial to verify the name under which the land is registered. Additionally, it’s important to ensure that the land is not involved in any legal disputes and that the seller holds sole ownership without other claimants. Below are key documents to review before buying a plot:

 

• Title deed: Ensure the land is solely in the seller’s name. Verify that no one else has been granted access rights through the property.

 

• Tax receipt and bills: Confirm property taxes are paid in full with up-to-date receipts. Check for any outstanding government requisition notices. Verify that water and electricity bills are current.

 

• Encumbrance certificate: Ensure the land has no legal liabilities. Confirm it’s issued by the sub-registrar office where the deed is registered.

 

• Pledged land: Ensure all loans against the land have been repaid. Obtain a Release Certificate from the bank.

 

• Land measurement: Have the land measured by a certified surveyor before registration. It’s strongly recommended to have a lawyer verify all documents for authenticity and consult with relevant authorities before making any investments.

Housing.com POV

The choice between buying a plot or a house depends on your personal priorities, financial situation, and long-term goals. If you value complete customisation, future expansion, and are willing to invest time and effort into constructing your dream home, a plot might be the ideal option. On the other hand, if you prefer immediate convenience, established infrastructure, and the potential for rental income, purchasing a ready-made house could better suit your needs. Carefully consider factors like budget, time, location, and legal aspects before making your decision, as both options offer unique advantages for different types of buyers.

FAQs

Which option has a better resale value – a plot or a house?

A plot generally appreciates faster, especially in developing areas. However, a well-maintained house in a prime location can also fetch a high resale value, particularly if there’s demand for ready-to-move-in properties.

Can I take a loan for a plot purchase as easily as a house loan?

Loans for plot purchases are available but usually come with higher interest rates and shorter repayment tenures compared to house loans. Additionally, many lenders require that construction begins within a specified period.

Are there specific regulations for building on a plot?

Yes, building on a plot involves adhering to local zoning laws, obtaining construction permits, and following regulations set by the municipal authority. These processes can vary by location and may require legal assistance.

Do houses in gated communities offer any additional benefits over independent plots?

Houses in gated communities often come with added security, shared amenities like parks and clubhouses, and maintained infrastructure. These benefits may appeal to families or those looking for a more structured living environment.

Which option has a higher risk of legal complications?

Purchasing a plot can carry higher legal risks, as it requires verifying land titles and obtaining construction permissions. Buying a house, especially from a reputed builder, usually involves fewer legal complications since much of the paperwork is already handled.

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Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com