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Vacation Homes Vs Urban Homes: What is a Better Investment?

The potential of the holiday home segment is considerable and growth is assured, given that a luxurious lifestyle ranks high among the priorities of the current generation

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Over the past few years, the real estate market in India has been experiencing various ups and downs, facing challenges ranging from political instability, wavering regulations, unequal application of rules, and the burgeoning RTI industry of blackmailers. Though the industry seems to have picked up pace this year, buyers and sellers continue to be cautious, affecting the demand-supply dynamics, as investors await further price corrections or consolidations in the market.

Buying a home has been a top investment priority among Indians, because of our deep rooted perception that residential property is a sure-fire investment that delivers excellent returns. Therefore, even though the residential real estate market has been at an all-time low, new investment avenues have opened up, especially for buyers looking to invest in second homes. The 2018-2019 Union Budget, too, has pushed for standardization of the market with the establishment of the Real Estate Regulation Act (RERA) in a bid to redefine real estate sales. It also made a few direct and indirect announcements in favour of affordable housing and infrastructure such as increase in total capital outlay for the infrastructure sector to INR 5.97 lakh cr and 10 per cent tax on LTCG on equity to tilt investment focus towards real estate.

Second home buyers are mostly driven by the agenda of deriving profit from their investments  or holding their property for prestige. While Indians have been investing in second homes since generations, we are now seeing an increased focus on something that offers more personal value, like a holiday home. Investing in a vacation home allows one to enjoy the additional benefit of a weekend holiday at an owned place. Moreover, such properties also offer the option of renting it out and earning income from the tourism potential of the investment destination, especially since homestays have become a lucrative market today. In fact, according to a recent report, the weekend homes market is growing at a rate of 10-12% per annum.

Vacation homes Vs Urban homes
The growth of the Indian economy with a considerable positive change in the lifestyle of people living in metros, tax benefits and the growing middle-class, has led to increased demand for weekend homes. People of all financial strata are hopping onto the leisure-property bandwagon, and investing in weekend getaways for both personal and commercial use. However, like with any place that isn’t inhabited on a regular basis, weekend homes can be tough to maintain, adding an extra layer of expenses to your budget. Also, one has to keep a check on the area’s land use and zoning plans - for instance, if you’re buying a mountain villa, you don’t want developers to build a tall structure that blocks your scenic vista.

Where you invest also matters. However, capital growth or appreciation will only happen in case the town or city you have chosen to invest in has round-the-year tourist footfalls and additional activity of (or capabilities for) seminars, conferences, corporate training events, spiritual workshops, etc.

The Bottom Line
To conclude, it is important to to look at several lifestyle and financial issues before making the decision to invest in a second home. That’s because everyone’s situation is different, and the right choice for your neighbor or friend might not be the best one for you and your family. If you’re not sure you want to commit to the same destination for a vacation home, you could also  look at other options, such as internal ownership or time-sharing, wherein you purchase the right to occupy a vacation property for a week or two every year.

The potential of the holiday home segment is considerable and growth is assured, given that a luxurious lifestyle ranks high among the priorities of the current generation.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Tags assigned to this article:
Urban Homes real estate

Devendra Parulekar

The author is Co-Founder of SaffronStays

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