Weekend homes, also called second homes or vacation homes, are currently an oasis of market activity in India's the otherwise lacklustre residential real estate sector.
Weekend homes, also called second homes or vacation homes, are currently an oasis of market activity in India’s the otherwise lacklustre residential real estate sector. In earlier years, only the affluent could and would invest in them – today, these properties are generating interest even from the country’s middle class.
So what exactly are weekend homes?
After the basic needs of shelter are met, most people have an in-built desire to own properties to use purely for relaxation. Obviously, such properties need to be in the more bracing and beauteous environs than the cluttered, polluted cities. Because quality hotel rooms in most getaway cities are limited and also very expensive, people like to invest in weekend homes there for short, hassle-free getaways. With the basic luxury factor vested in such locations’ mountains, lakes or religious shrines, these homes provide their owners with quality family time away from their routine city lives and often serve the extended purpose of providing a peaceful post-retirement life.
Where are these weekend homes?
The weekend homes segment exists in towns and cities that lie within 2-3 hours of road, train or even plane travel. The most famous weekend home destinations have been Shimla, Kasauli and Kerala, with Wayanad in Kerala being the most sought-after in the state. However, with increasing demand, more and more places are being successfully marketed as weekend home destinations: Lavasa, Lonavala, Alibaug and Igatpuri near Mumbai for weekend getaways, vacation spots like Mussourie, Ooty, Coorg and Goa, and the likes of Haridwar for the religiously inclined. What attracts buyers in this segment are primarily a serene location with good weather, good infrastructure and potential for rental income.
Because weekend homes have caught on big time with the middle class, developers are now falling over themselves to cater to the demand. The primary reasons for the increased demand are the growth of the Indian economy, rise in High Net-worth Individuals (HNIs) and the steadily growing aspirational middle class.
In absolute terms, the growth registered by the vacation home segment in year 2014 was 57% over the year 2013. The total number of properties sold was 1.3 million, and made up almost 21% of all real estate transactions. On an average, the second homes market is growing at a healthy rate of 10-12% per annum.
With the larger real estate sector not showing any immediate signs of revival, the weekend/vacation homes segment is showing attractive growth. All major developers are vying to get a slice of the pie with options priced from a few lakhs to a few crores being launched quite regularly to cater to different end-users and investors.
Are they good investment options?
A weekend home is generally purchased only after one’s primary home is secured. If the first home is debt-free and one has sufficient reserves, then investing in a weekend home make perfect sense.
Nevertheless, it is good to keep some operative facts in mind while considering this option:
One spends only a limited amount of time per year in a weekend home. Nevertheless, there will be regular expenses on maintaining the property. If one does not wish to put the property on rent, the costs would include keeping a caretaker.
* If the property is to be put out on rent throughout the year, there would be expenses on regularly upgrading the basic amenities
* The average rental potential of such a property is 2-7% of its value. This may not suffice to cover one’s expenses towards paying the mortgage, if one is availed of, and the maintenance expenses.
* In a majority of cases, weekend homes attract higher rental revenue-generating tourist activity for only about 10-15 weeks a year. From a rental perspective, the rest of the year would be a slump.
* Capital growth or appreciation will only happen in case the town or city has round-the-year tourist footfalls and additional activity of (and capabilities for) seminars, conferences, corporate training events, spiritual workshops, etc. Only such kind of market fundamentals resulting in regular rental demand in the city chosen for a weekend home can ensure appreciable capital value growth of a property.
The future of the weekend homes segment
Unlike America, where almost 25% of the population has a second or a weekend home, India is just waking up to the idea. The potential of this segment is considerable and growth is assured, given that a luxurious lifestyle ranks high among the priorities of the current generation (rather than remaining just a dream, like the previous generation.)
As a buyer, perform your research diligently and only invest if your financial goals are in place. These homes may not offer the best in terms of monetary returns on investments, but they can certainly make you rich when it comes to peaceful living, even in small spurts.
The author is CEO – residential services, JLL India