In India’s rapidly expanding real estate market, people invest in second homes for personal and financial reasons. Investment in second homes in India can provide passive rental income, capital growth, and a personal vacation retreat. The second home market in India is experiencing a surge in demand, driven by post-pandemic shifts and evolving lifestyle preferences. A second home is ideal for retirement, offering a relaxing retreat in a desirable location that provides a refreshing change of scenery. Favourable loan terms and tax incentives further enhance the appeal. Hence, if a second home is a good investment in India, we have covered everything you need to know about owning a second home in India and what factors to consider before investing.
Why the second home market is booming in India
The second home market is at an all-time high. According to a realty firm Axon Developers report, the second home market size is set to reach $4 billion by 2026. This surge in demand is due to various factors, such as post-pandemic lifestyle shifts and evolving preferences. Here are some key reasons why India is seeing rapid growth in the second home segment:
Lifestyle changes: The pandemic has made people look for a new lifestyle beyond just routine living. A second home is more like a peaceful escape for many. People are also looking for a way out of city life, towards nature and relaxation.
Remote work: Post-pandemic, we have seen more and more companies shifting towards a remote work culture. Hence, people are choosing serene locations over the bustling life of cities. This is a crucial reason why people invest in holiday properties.
Millennial buyers: Millennials are among the top second-home buyers. The millennial workforce is more about flexibility and values the ability to enjoy vacations without relocating permanently.
Fractional ownership: Fractional ownership, or co-owning homes, has become increasingly popular. This trend is making high-quality properties more accessible.
Affordability and Incentives: Reduced stamp duty rates and the affordability of properties in city peripheries compared to urban apartments have made second homes more attractive investments.
Income Potential: Second homes offer a chance for passive rental income and a long-term increase in property value. About 75% of Indians view real estate as a key investment.
Retirement Homes: The search for serene retirement destinations has made second homes increasingly popular among retirees.Â
When is the right time to buy a second home?
Right now is the best time to buy a second home in India. With favourable market conditions, lower financing costs, and various incentives, people can consider investing in a second home. However, some factors come into play when it comes to taking this decision, such as:
Current market conditions: If you look at the current real estate scenario, the market seems attractive due to reduced repo rates and increased capital infusion into infrastructure. Developers offer attractive prices and incentive schemes, making this the right time to invest in a second home.
Financial Planning: To know the right time for your second home, you should ensure that it fits well with your long-term goals. Do your math, calculate EMI, maintenance costs, and ensure these expenses fit your budget.
Purpose of Investment: Understand why you need a second home. Whether it’s for personal use, vacation, or rental income, the purpose behind investing should be clear. The reason for investing can influence the type of home you choose. For personal use, look for homes that fit your lifestyle needs. For rental income, choose locations with high rental demand and good returns.
Type and Location: We can see a surge in demand for 3 BHKs and villas. People are looking to invest in suburban and tier 2, tier 3 cities for their capital appreciation and spacious options. Investing in these areas often results in faster appreciation compared to city properties.
Return on Investment: If you decide to rent out the property, it can offer a steady stream of passive income
Pros and cons of buying a second home
Pros | Cons |
Rental income can provide a steady cash flow, especially in high-demand areas. | Purchasing a second home requires a substantial upfront payment. |
Real estate often appreciates over time, potentially increasing the value of your investment. | Additional costs for maintaining the property, including repairs and management. |
Tax benefits on mortgage interest and property taxes can be advantageous. | Higher interest rates on loans for second homes and increased financial liability. |
Diversifies investment portfolio beyond stocks and bonds. | Complexities in legal paperwork and compliance with local regulations. |
Provides a personal retreat or vacation home, enhancing quality of life. | Managing the property remotely can be challenging, especially in a different city. |
A second home can contribute to long-term wealth and financial stability. | Risk of the property being vacant for extended periods, affecting rental income. |
Retirement planning: why it makes sense to buy a second home
During retirement planning, investing your wealth the right way is crucial. Between mutual funds, gold, or monthly income plans, a second home has become famous for many retirees. Here is why a second home makes sense if you are planning to retire:
Regular rental income: A second property can offer rental income that can supplement your pension and provide more financial stability. Unlike gold or mutual funds, a rental property will generate stable income.
Increasing rentals: Once the loan is paid off, the rental income becomes pure profit. Over time, rents rise; even if you take out a home loan, the rental income will cover it.
Tax savings: Under Sections 80C and 24 of the Income Tax Act, a second income can benefit tax savings. Deductions can be claimed on the home loan’s principal and interest components.
Cover against emergencies: In case of emergencies, a second home can be a valuable asset as a cushion. The property can be sold to provide funds or rented out for additional income if needed.
Experts suggest buying the property 10-15 years before retirement to ensure you can manage the loan repayments comfortably.Â
Where to buy a second home? Best second home destinations in India
Shimla, Sindhudurg and Coorg are among the top 10 destinations in India for second homes. As per a report by Axon developers, other second home or vacation home destinations include Dehradun & Mussoorie, Siliguri & Darjeeling, Nandi Hills, Pondicherry, Chamba & Tehri Belt, Rishikesh & Haridwar belt, Lonavla & Mahabaleshwar.
Source: Savills India
Top second home destinations in India
Shimla | Nandi Hills |
Sindhudurg | Pondicherry |
Coorg | Chamba & Tehri Belt |
Dehradun & Mussoorie | Rishikesh & Haridwar |
Siliguri & Darjeeling | Lonavla & Mahabaleshwar |
Preferred second-home ticket sizes
The preferred ticket size for second homes is predominantly below INR 2 crores. Key insights include:
- 46% of buyers are targeting properties within Rs. 50 Lakh to 1 Crore.
- 24% of potential buyers are looking at homes in the 1-2 Crore range.
- 14% are interested in properties priced between Rs. 2-3 Crore range.
- 5% are interested in properties priced between Rs. 3-4 Crore range.
- 5% are interested in properties priced between Rs. 4-5 Crore range.
- 5% are interested in properties priced more than 5 Crore.
In terms of investment timelines:
- 57% of respondents plan to buy a second home within 2 years.
- 80% intend to hold their second homes for more than 5 years.
Source: Savills India research
Things to keep in mind while buying a second home
- Know why you want to invest in a second home: First, you need to understand why you want to buy a second home – for investment or personal use. In the case of investment, know that the returns in the initial stage can be low but will get better with time as the rental income increases.
- Credit Score: Aim for a high credit score (around 725 or 750) to qualify for better loan terms. A robust monthly income is also crucial.
- Budget Evaluation: Budget evaluation for the second home is like buying your first. You must factor in mortgage payments, taxes, maintenance and insurance expenditures to finalise a budget and shortlist homes based on that.
- Research the location well: Location is one of the most significant areas to consider when buying your second home in India. The location can aid you in measuring the property’s appreciation potential. A villa or a row house in a peaceful, quiet area as a second home can be a good choice if you want to buy it as a retirement home.
- Tax Benefits: Take advantage of tax benefits by claiming interest on the loan as an expense against rental income.
- Down Payment: Increasing your down payment can lower interest rates and reduce loan repayment time.
- Ready Homes: Opt for ready or nearly ready homes to avoid delays from construction issues. Though more expensive, ready homes can be a safer investment in the current climate.
Buying a property which is currently on a home loan
Buying a property with an existing home loan can be advantageous, potentially speeding up the buying process and securing a better deal. However, it’s essential to approach this option thoughtfully to ensure it’s a wise investment. Here are essential tips to keep in mind when pursuing this route.
- Whether buying the property with a new Home Loan or using your funds, get an outstanding loan statement from the seller.
- Check the loan’s details, like the interest rate and how much is left to pay. See if these terms are better than what’s available now.
- You need the lender’s approval to take over the loan. This means your credit and finances will be checked.
- Make sure to check the property carefully.
- Look over all the documents related to the loan and property. It might help to get a lawyer to check them.
- Use the fact that there’s an existing loan to try and get a better price.
- Plan for costs like transfer fees and legal fees.
- If you plan to use a Home Loan to buy a property with an existing mortgage, consider getting the loan through the seller’s current lender.
Buying a vacation home without owning a first home
Financial considerations
Pros:
- Investment opportunity: A vacation home can appreciate in value over time, especially in a popular tourist destination. It could provide rental income if rented out when not in use.
- Leisure and lifestyle investment: Owning a vacation home allows you to enjoy regular getaways, which can enhance your lifestyle. If you frequently visit the same location, owning can be more cost-effective than continuously renting accommodations.
Cons:
- High costs and maintenance: Vacation homes typically involve additional costs such as property maintenance, taxes, insurance, and utilities. Without a first home, managing these expenses can strain finances, especially if it’s a second property that doesn’t generate income.
- Uncertain future first home purchase: Tying up capital in a vacation home may delay buying your primary residence. A first home often provides stability and long-term financial benefits that may be more crucial than a leisure property.
Lifestyle Considerations
Pros:
- Flexibility and convenience: Owning a weekend home gives you the freedom to visit whenever you want without worrying about availability or rising rental prices. It also gives a sense of familiarity and comfort, as it’s your personal space.
- Resale or upgrade opportunity: If the vacation property appreciates over time, you might sell it and use the proceeds toward buying your primary residence. It can act as an investment stepping stone.
Cons:
- Limited utility: A vacation home may only be used occasionally, making it an underutilized asset. Without a primary residence, it might feel impractical to own a property you only visit on weekends or during vacations.
Psychological consideration
Owning a first home typically brings a sense of security. If the vacation home is the first and only property you own, you might feel unsettled about not having a place to call home for daily living.
Rental income potential through timeshare companies
Timeshare companies offer a unique opportunity to generate rental income from a vacation home. When you own a vacation property, you can partner with these companies to rent it out during periods when you’re not using it. Here’s a breakdown of the rental potential through timeshare companies:
Rental income potential
- Seasonal variability: The amount of rent you can earn depends on the location and season. Properties in popular tourist destinations or seasonal hotspots (like beach resorts or mountain retreats) can generate higher income during peak periods, such as summer or holiday seasons.
High season: Earnings tend to be highest during popular travel periods, sometimes covering a significant portion of annual property costs.
Low season: During off-peak times, rental demand may be lower, reducing rental income potential.
- Location-specific rates: In sought-after areas, such as Goa or the hill stations in India, timeshare companies can fetch substantial rental income, ranging from ₹3,000 to ₹15,000 per night, depending on the property’s amenities, location, and size.
For high-end locations like Mahabaleshwar, Shimla, or Lonavala, rental rates can be even higher, especially for well-maintained, luxurious properties.
- Occupancy rates: Timeshare companies typically manage multiple properties, so the percentage of time your vacation home is rented out depends on their network and demand in your property’s area. In prime locations, occupancy rates can be higher, translating to more consistent income.
Shared profits with timeshare companies
Management fees: Timeshare companies usually take a percentage of the rental income as a management fee. This fee typically ranges from 20% to 40% of the rental earnings, depending on the level of service they provide (e.g., marketing, cleaning, property management).
Net earnings: After deducting management fees, taxes, and maintenance, the actual income you can pocket might be reduced. However, for properties in high-demand locations, timeshare rentals can still provide a steady secondary income stream.
Additional considerations
Maintenance costs: While timeshare companies manage bookings and guest services, the homeowner is usually responsible for regular maintenance costs. This could reduce net profits, especially if your property requires significant upkeep.
Location connectivity: Ensure the location is well-connected with transportation options and amenities to avoid isolation. Proximity to airports, roads, and services is crucial.
Travel distance: Consider how far the property is from your primary residence. If buying for personal use, assess how much travel time you’re willing to invest. A more distant property might be less practical for frequent visits.
How many properties can a person buy/own in India?
In India, there are no legal restrictions on the number of properties an individual can own. This means that if you decide to sell one property, you are free to purchase multiple new properties without facing any legal issues.Â
You can manage your investments based on your financial goals and market conditions, making it easier to expand or adjust your real estate holdings.
How many home loans can one person have?
In India, you can have as many home loans as you need. There is no law limiting the number of home loans you can take. For instance, if you want to buy five properties simultaneously, you can secure five separate home loans from five different lenders.
Tax implications of owning more than one house
If you are planning to buy a second home in India, it is crucial to understand the tax implications under the Income-Tax Act 1961. If you own multiple properties, you’ll need to pay tax on each one. This applies whether the property is self-occupied or rented out. As the property owner, you are responsible for paying property tax for each property you own.
Further, it is also important to understand tax implication of self occupied and let out property:
Self-occupied property (SOP): This is a property you live in. For tax purposes, it is considered that you do not earn rental income from this property, so it is not taxed as income. In India, an individual is allowed to claim a maximum of two houses as self-occupied for tax purposes.
Let-out property (LOP): This is a property that you rent out. You must declare the rental income on your tax return. You can deduct 30% of the rental income as expenses, along with the interest on any home loan and municipal taxes paid. The remaining income is added to your total income and taxed based on your tax slab.
Tax benefit on a second home loan
Scenario | Tax Benefits |
When one house is rented | – Rental income is taxable.
– Claim 30% standard deduction on Net Annual Value (NAV). – Claim full interest on home loan without limit. |
When both houses are not rented | – Both properties are considered self-occupied.
– Claim interest on home loan up to ₹2 lakhs combined for both houses. |
When both houses are rented | – Rental income is taxable.
– Claim full interest on home loan for both properties without limit. |
Housing.com POV
Investing in a second home now is appealing because of good market conditions, attractive loan terms, and tax benefits. A second home can offer a relaxing getaway or a source of rental income. However, make sure to consider your finances, why you want the home, and the tax effects before buying. It’s a great time to invest, whether for retirement or profit.
FAQs
How many properties can I own in India?
You can own as many properties as you wish in India without any legal restrictions.
How does fractional ownership work?
Fractional ownership is where several people share the cost and ownership of a property. Each person owns a part and can use it at certain times. It makes expensive properties more affordable.
When is the best time to buy a second home?
Buy when prices are low, interest rates are good, and you’re financially ready. Look for deals or incentives.
What are the top locations for buying a second home in India?
Shimla, Coorg, Pondicherry, Nandi Hills, and Dehradun. They offer beautiful views and a peaceful environment.
What is the average return on property investment in India?
The average return is around 8-12% per year, from both rental income and value increase. However, returns can vary by location and you should only invest after thorough market research.
Which city in India has highest ROI on property?
Hyderabad, Bangalore, and Ahmedabad usually offer the highest returns.
Which state has the cheapest property in India?
Kolkata is one of the most affordable cities in India to buy a house.
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 |