Initially demand for second homes was driven by people wanting to relax and rejuvenate in a vacation home and reduce the risk of being infected by the virus. However, over time, it became a lifestyle choice for many upper middle class families.
India’s residential real estate market showed signs of a swift recovery in 2021. Home sales through the secondary market as well as new launches recorded significant growth. However, as several people became acclimatized to working remotely, there has been a significant increase in sales of second homes. While there is merit in its utility, many have also looked at the second home as an investment opportunity.
As a concept – ‘second homes’ can be traced back to the pre-British period in India. Many in the financially secure sections of the country’s population have bought additional homes. Second homes in picturesque locations have increased steadily over time. The last two years have seen an increase in the demand for vacation homes. This is largely due to numerous restrictions imposed due the COVID-19 pandemic including travel bans and work from home. Initially demand was driven by people wanting to relax and rejuvenate in a vacation home and reduce the risk of being infected by the virus. However, over time, it became a lifestyle choice for many upper middle class families.
Unlike before, many reputed developers have entered this space and therefore have de-risked the process of land acquisition, obtaining permissions, construction etc. This is one of the other reasons that this growth in the second home market has been sustained. By offering homes in gated communities, homeowners benefit from ease of purchase as well as common facilities such as swimming pools, gymnasiums, jogging tracks, patios, sports arenas, and health centres. This not only reduces the cost of purchase but also reduces the cost of maintenance over a period of time.
Value and price in this segment is linked to infrastructural development around the location. Needless to say, access to a large city is essential but less obvious factors such as
24-hour un-interrupted electricity and water, good internet connectivity, and the availability of good medical facilities are also very important considerations.
However, every investment comes with risks. The most obvious risk with purchasing a second home is timing the market poorly. Over the last two years, the demand and prices of second homes rose. With most people returning to work full-time in 2022, schools re-opening and international travel becoming easier, one must consider the possibility of a correction in prices. Secondly, the risk of more aggregators entering the market aslo means that in terms of utility, one can use/rent some else’s second home for a short period of time without the hassles or capital commitments of owership.
Therefore, I believe that the second home market will continue to grow, however at a much slower pace than the last two years has seen.
(By Farshid Cooper, MD, Spenta Corporation)