The pandemic and the subsequent shift in work patterns have led many people to re-evaluate their lifestyle choices and investments. The combination of remote working turning into the new normal, enhanced affordability, need to diversify investments and softening home loan interest rates is creating an ideal environment for Indians to invest in second homes.
The market that was initially driven by the desire of having a home in a holiday destination to relax and rejuvenate, is now gaining wider traction from working population.
As several aspirational buyers evaluate alternate and additional homes, the market seems to cater to the demand effectively by offering a variety of options. Hence, second homes are witnessing a strong demand growth as the economy emerges from the pandemic.
Our recent research reveals that 70% of the consumers would like to invest in second homes within two years. It also reveals that around 70% of the overall demand is for properties priced within ₹2 crore. As a part of the research, we analysed the customer responses on critical parameters that they consider while purchasing second homes. These include the desire of having a spacious and comforting second home at a holiday destination that serves an ideal place to relax, unwind and rejuvenate, spacious and larger floor size, and health and wellness. Other significant parameters include direct connectivity from base destination, internet infrastructure and access, and return on initial investment.
We have witnessed a higher preference (around 58%) for second homes in gated communities that include apartment complexes, gated villas, penthouses, and condominiums as compared to standalone farmhouses, bungalows and plots. The buyers want to cherish even the limited sense of community living as COVID-19 forced everyone into isolation for a long time.
Rising affordability is one of the major key demand drivers of second homes. Though residential property costs have been rising over a period, so is affordability. This is coupled with lower interest rates on home loans. The rise is also attributed to the increase in the number of professional players in the segment. The developers are increasingly offering targeted supply for different customer segments and a smooth digital sales experience to promote safety and hygiene amid the pandemic. The growing presence of property management operators such as AirBnB, Vista Rooms and Isprava is bringing more organisations to the segment. These operators are providing end-to-end property management services to customers.
Within India, holiday destinations such as Goa, Lonavala, Dehradun, Shimla and Alibaug are emerging as preferred second home destinations. Across the world, Indians are investing in second homes in London, Dubai, Portugal, Scotland and Canada.
A snapshot of South India
Coonoor, Ooty, Kodaikanal and Chennai’s East Coast Road (ECR) are the popular second home destinations in Tamil Nadu. In Karnataka, Coorg is a popular holiday home destination, and in Kerala, people are investing in second homes in Wayanad.
Tamil Nadu is leading the domestic demand from the south, contributing to over 9% of pan-India demand for second homes. In Chennai’s East Coast Road, 13% of residential housing demand comes from penthouses which are bought as second homes. In other markets, the demand for penthouses is around 3 to 7%. The second home property market in the region is in an early upswing stage and rental yields are around 3 to 4%.
The rich cultural heritage, beautiful coastline and picturesque hill stations make Tamil Nadu, which is among the top tourist destinations, a preferred second home destination. Though there has been an appreciation of 15 to 20% in the property prices compared to the pre-pandemic year of 2019, homes still remain affordable as compared to many other markets. The investors thus benefit from good rental income as well as high appreciation advantage. The market is also ideal for end users with excellent road, railway and air connectivity to all parts of the country and countries abroad.
Key considerations
Millennials do not consider second homes as a symbol of affluence or a means for asset diversification. In fact, these are now the least important factors across age groups. The more important considerations when investing in a second home are price buckets and returns in the short and long terms. They are being used as a means for good income generation in the form of rentals and high returns upon exit. Even when investing in second homes in international locations, the key consideration is getting a good return on investment.
In a market where there are many lucrative options available, it becomes even more important to weigh all the pros and cons and make an informed decision. Hence, several investors are also looking at fast-developing localities, rather than only evaluating to invest in an already developed location.
The writer is CEO, Savills India.
