Should I Invest in plots ?
Updated: Mar 27
Investing in real estate has always been a popular option among investors looking for a steady income stream or long-term capital appreciation. When it comes to investing in real estate, plots are an option that should not be overlooked. In this article, we will explore the advantages and risks of investing in plots, factors to consider before investing in plots, and a comparison with other forms of real estate investment.
Advantages of Investing in Plots:
Higher Potential for Capital Appreciation:
Plots can have higher potential for capital appreciation than other forms of real estate investment such as rental properties. This is because plots can be bought at a relatively low price and can appreciate significantly in value over time, particularly if they are located in areas with high growth potential.
Flexibility in Construction and Development:
Investing in plots offers the flexibility to construct or develop the property in a way that maximizes the potential return on investment. For instance, investors can build residential or commercial structures that are tailored to the needs of the market in the area, resulting in higher rental yields or capital appreciation.
If we see the price appreciation between Plots and Flats over the period of time in Nagpur, Maharashtra:
Between 2016-2018: The price of flats appreciated by around 5-7%.
Between 2018-2020: The price of flats appreciated by around 8-10%.
Between 2020-2022: The price of flats appreciated by around 12-15%.
Between 2016-2018: The price of plots appreciated by around 8-10%.
Between 2018-2020: The price of plots appreciated by around 10-12%.
Between 2020-2022: The price of plots appreciated by around 15-18%
We can clearly see that there is comparatively high appreciation in Plots value than that of flats. See some Prime location plots in Nagpur by TejMora Properties
Lower Maintenance Costs:
Investing in plots can also be advantageous in terms of lower maintenance costs. Since there are no buildings or structures on the plot, there are no maintenance expenses such as painting, repairs, or renovations. This can result in lower costs and higher profitability for the investor.
Lesser Financial Risk:
Compared to Other Forms of Investment Investing in plots can also be less risky compared to other forms of investment such as the stock market or mutual funds. This is because plots are a tangible asset that can be held physically, and their value is not as dependent on market fluctuations or investor sentiment.
Factors to Consider Before Investing in Plots:
Location and Accessibility:
One of the most important factors to consider when investing in plots is location and accessibility. Plots that are located in areas with high growth potential, good infrastructure, and easy access to transportation are likely to have higher potential for capital appreciation and rental yields.
Market Conditions and Demand:
Investors should also consider market conditions and demand when investing in plots. This includes analyzing the supply and demand for plots in the area, as well as the potential for growth in the local economy and job market.
Size and Shape of the Plot:
The size and shape of the plot are also important factors to consider when investing in plots. A larger plot may have higher potential for development and profitability, but may also have higher acquisition and holding costs. Investors should also consider the shape of the plot and its suitability for development.
Infrastructure Development in the Area:
It is an important factor to consider when investing in plots or any other form of real estate. Good infrastructure, such as transportation networks, utilities, and access to basic amenities, can increase the value of the property and attract potential buyers or renters. On the other hand, inadequate infrastructure can have a negative impact on the property's potential for capital appreciation or rental yields. Therefore, investors should research and analyze the level of infrastructure development in the area before making any investment decisions.
Risks Associated with Investing in Plots:
Market Fluctuations and Volatility:
One of the main risks associated with investing in plots is market fluctuations and volatility. The value of plots can be affected by various factors such as changes in economic conditions, supply and demand in the area, and regulatory changes. Investors should be aware of these risks and have a long-term investment horizon to mitigate the impact of short-term market fluctuations.
Another risk associated with investing in plots is liquidity concerns. Plots can be difficult to sell quickly, particularly if there are few buyers in the market. This means that investors may have to hold onto the plot for a longer period of time than anticipated, resulting in lower returns than expected.
Investors should also be aware of location-specific risks associated with investing in plots. For instance, plots located in areas with poor infrastructure, inadequate access to utilities, or environmental concerns may have lower potential for capital appreciation or rental yields.
Zoning and Regulatory Risks:
Finally, zoning and regulatory risks should also be considered when investing in plots. Changes in zoning regulations or new regulations that affect the plot can result in lower potential returns or higher costs for the investor.
Comparison with Other Forms of Real Estate Investment:
Investing in plots is not the only option when it comes to real estate investment. There are other forms of real estate investment that investors can consider, such as rental property investment, commercial property investment, and REIT investment. Let's take a closer look at how investing in plots compares to these other forms of investment.
Rental Property Investment:
Investing in rental properties involves purchasing a property and renting it out to tenants. This can be a good option for investors looking for a steady income stream from rent payments. However, it can also come with higher maintenance costs and the need to manage tenants and property maintenance. Additionally, the potential for capital appreciation may be lower compared to investing in plots, particularly if the rental property is located in an area with lower growth potential.
Commercial Property Investment:
Investing in commercial properties, such as office buildings or retail spaces, can be a good option for investors looking for higher rental yields and potential for capital appreciation. However, commercial properties can be more expensive to acquire and may require higher management costs, particularly if multiple tenants are involved. Additionally, commercial properties may be more sensitive to changes in economic conditions or changes in the business environment.
A real estate investment trust (REIT) is a company that owns and operates income-generating real estate properties. REITs allow investors to invest in a diversified portfolio of real estate properties without the need to manage the properties themselves. This can be a good option for investors looking for a more passive form of real estate investment. However, REITs can be sensitive to changes in interest rates and market conditions, and may have higher fees compared to investing in plots directly.
So, Investing in plots can be a good option for investors looking for higher potential for capital appreciation, flexibility in construction and development, lower maintenance costs, and lower financial risk. However, investors should also be aware of the risks associated with investing in plots, such as market fluctuations and liquidity concerns. Additionally, investors should consider factors such as location and accessibility, market conditions and demand, size and shape of the plot, and infrastructure development in the area before investing in plots. Overall investing in Plots will be always more beneficial than Flats.