Land appreciates, Building depreciates.

When i meet group of people, I always ask if they invest in land or invest in apartment / commercial property. Most of the time i see people invest in residential apartments. I have few friends who have multiple apartments which they have bought for investment purpose. So which option is better?

Past and Current Trending

In the past and current trending category, land investments are quite excellent. In fact, the only thing in the history of the world that has been consistently rising is the price of land, because land ownership is a big part of life in much of the world today. For that reason, the trends over the past and the current amount of time show that land investments are great opportunities that for the most part will yield good returns ( much more than inflation % and bank saving rate ) in the past and in the present. Inflation % gives good indication of minimum expected return. 

Same is true for apartments but with lower percentage with few exceptions **. Quality of the apartment should be good otherwise value can depreciate quickly also Apartment needs to have all modern amenities otherwise cost to upgrade will be high. If apartment is not rented out then it may have maintenance issues and you will end up with EMI for empty apartment. Remember building always depreciates. Flats appreciate only because of the underlying appreciation of the undivided land but in the long run ( Perhaps after 10-15 years, depending on construction quality). If constructions quality is bad then only option is to destroy building and build new complex.

** Exceptions: Apartment in a location which can not be replaced like Marine Drive. Mumbai is landlocked so it has limitation but for Pune we have seen in last 10 years that city evolves every few years.

Conclusion

Land ( Plot ) always appreciates because of inflation; Apartment ( Building ) always depreciates. Investment in apartment is good if you are going to live in it or getting very good rent but if neither is true then it is a bad investment. Other alternative is to buy commercial real estate which can provide good rental income.

Share your thoughts and experiences.