Apartment vs. Independent House: Factors To Keep In Mind

A financial goal that transcends all regions and communities is that of owning a home. Once the required financial planning is done and necessary savings accumulated, the next question is whether to buy an apartment or an independent house.

When you start house-hunting, the first question you end up asking yourself is whether to go for an apartment or a plot on which you can build your dream home. While we really can’t answer that for you but we can surely provide you with the cost-benefit analysis associated with both.

Home Loan Tax Treatment and Benefits

Home Loan comes with many advantages, one of the key benefits if you take a home loan to purchase real estate is the tax benefit associated with it. The tax treatment for an apartment is quite different from that of an independent house. Let’s take a look.

• Apartment: You are entitled to tax deductions on the principal amount and the interest rate, when you take a loan to buy an apartment.

The maximum tax deduction under section 80C for the principal amount is Rs 1.5 lakhs for a self-occupied apartment. However, this limit is the total exemption that an individual can claim under the section including other tax saving instruments such as PPF, ELSS, etc. Additionally, home owners are also entitled to a maximum tax deduction of Rs. 2 lakhs on the interest payable each financial year under Section 24.

Subsequent to the budget 2016 announcements, first-time home buyers are receive an additional deduction of up to Rs. 50,000 over and above the original limit of Rs. 2 lakhs under section 24, for a property valued at less than Rs. 50 lakhs and a total loan amount not exceeding Rs. 35 lakhs for purchase of the property. This additional benefit will add to up as additional annual tax savings of Rs. 15,450 for an individual in the highest tax bracket.

• Independent house: In case of an independent house, you can avail a loan for land purchase and construction. However, keep in mind, tax deductions are applicable only for a home loan taken against construction of a house and only after the construction work is complete. If you leave the plot vacant after its purchase, you cannot claim tax exemption on the interest paid for the plat acquisition loan.

After the construction is completed, you can claim tax exemptions on the interest accrued on home loan during the construction period. The interest accrued on the home loan during the construction period can be claimed as tax deduction for up to 5 years after the completion of construction. Thus, the tax benefits you are liable to receive get delayed when you opt for an independent house.

Additionally, the deduction of the interest paid for the construction of a self-occupied independent house is subject to the construction being completed within three years from the end of that financial year when the capital was borrowed.

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Cost Analysis

The cost of buying an independent house is much higher than that of buying an apartment hence your home loan requirement will increase in a corresponding manner. It would include the price of the plot, the stamp duty to be paid to the Government once you purchase the plot, the clearances required from various authorities, the cost for an electricity connection, raw materials to build the house, labour costs depending on city, and the architect fees. The costs vary depending on the location as land and labour costs often differ on the basis of the town, region and city, where the house is being built.

Let’s take a look at how demonstrate the cost for building an independent house with an example. Let us consider that the location is at Whitefield, Bengaluru*:

Indicative scenario for purchasing an independent house in Bengaluru	Cost of construction (just ground floor) Area: 1400 sq. ft	Rs 1600 – 1800 per sq. ft.	Rs 22,40,000 (minimum: 1400*1600 for constructing just the ground floor)
	Land prices	Rs 3,570 – 4632 per sq. ft.	Rs 49,98,000
	Total Cost		Rs 72,38,000
Indicative scenario for purchasing an apartment in Bengaluru	Area: 1400 sq. ft.	Rs 3,730 per sq. ft.	Rs 52,22,000
	Total Cost		Rs 52,22,000

*The above figures are for illustrative purposes only and are subject to change over time.

Note that in both the scenarios we have excluded the cost of stamp duty, registration, and cost of materials and labour, in the case of construction.

Apart from the financial side of the decision discussed above, the following are a few other convenience-related factors that deserve a mention:

1. Buying and Selling – Buying and selling an apartment is often much easier than an independent house. Furthermore, those selling an independent house are easier targets when it comes to fraud, as private land deals are more prone to cheating. When the land is allotted by the development authority of the city to the builder, there are lesser chances of this taking place. Buying an independent house is also risky business due to the possibility of fake registration papers.

2. Setting-up and Maintenance – When you buy an apartment in a complex, you don’t have to worry about finding a contractor, architect or seeking approvals from local government bodies, like in the case of building an independent house. The builder is in charge of all these aspects, as also managing day-to-day maintenance, security and power back-up. It’s far easier to rely on the real estate company to deal with issues like a change in government policies, the complexities of land transactions and other issues, than having to deal with them on an individual basis.

3. Amenities – If you have an independent house, you might not have access to the modern-day conveniences provided by complexes nowadays, like a garden, gymnasium, play area for kids or a community club. Apartment complexes are far safer as well, as most complexes provide round-the-clock security. Apartment complexes also draw businesses in, as they see the advantage in catering to a larger number of customers. As a result, they end up becoming far more self-sufficient  over time, and this in turn brings about an appreciation in the value of the property as a whole.
4. Service Providers – People living in apartment complexes have a range of services available at their doorstep – laundry services, maids, cooks, electricians, carpenters and plumbers, to name a few. What’s more, services are offered on a retainer basis and at standard rates. House owners might not have such ready access to service providers unless they book these through mobile applications.
5. Community Issues – Most apartment complexes have a group of representatives that manage common issues and grievances, and looks after the needs of the tenants. Since apartment complexes represent a much larger group of people, they have more clout with local civic agencies than independent house owners.

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In conclusion

Given the current housing scenario, it is more prudent to opt for an apartment complex than an independent house, more so since one can avail of many tax benefits with the former. For individuals who are working on a budget and looking to settle down in the city, buying an independent house would cause unnecessary strain on finances as well, given that city life is expensive as is.