Why not invest in a weekend home?

Weekend homes, also known as second homes or vacation homes, are currently an oasis of market activity in India’s otherwise lacklustre residential real estate sector. In earlier years, only the affluent could and would invest in them, but today, these properties are generating interest even from the country’s middle class.

What classifies

a weekend home?

After the basic needs of shelter are met, most people have an in-built desire to own properties that they can use purely for relaxation.

Obviously, such properties need to be in more bracing and beauteous environs than cluttered, polluted cities.

As quality hotel rooms in most getaway cities are limited and expensive, people like to invest in weekend homes there for short 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 the city, and often serve the extended purpose of providing a peaceful post-retirement life.

Ideal location?

The weekend home segment exists in towns and cities that are located within 2 to 3 hours by road, train or even by air travel.

The most famous weekend home destinations have been Shimla, Kasauli and Kerala. And in Kerala, Wayanad is the most sought-after.

With increasing demand, more places are being successfully marketed as weekend home destinations. Lavasa, Lonavala, Alibaug and Igatpuri near Mumbai are popular weekend getaways. Vacation spots like Mussourie, Ooty, Coorg and Goa, and the likes of Haridwar, for the religiously inclined, are well-known. What attracts buyers in this segment is the serene location with good weather, infrastructure and potential for rental income.

Current trends

As weekend homes are popular among the middle class, developers are now going the extra mile 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 per cent more than the year 2013.The total number of properties sold was 1.3 million, and made up almost 21 per cent of all real estate transactions.

On an average, the market for second homes is growing at a healthy rate of 10-12 per cent per annum.With the 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.

Is it a good investment option ?

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 a 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 hiring a caretaker.

If the property has to be rented out throughout the year, there would be expenses towards regularly upgrading basic amenities.

The average rental potential of such a property is 2-7 per cent of its value. This may not suffice to cover one’s expenses.

In majority of the 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 and spiritual workshops. 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.