Second homes and some of the preferred locations.

Photo courtesy Grant Durr on Unsplash.

A second home is an additional residential place maybe on a shore or a hill station where you go on the weekends or for longer vacations.

The residential properties can be classified into three categories:-

Primary residence– This is the main residence of a person where they live most of the time and it may be an apartment or a bungalow. The home is near to the place of work.

Second-home– A second home is the residence of a person that he intends to occupy for a part of a year or visit at regular intervals and is not his primary residence.  It could be located in a vacation place like the mountains or near the sea and is generally at some distance from the person’s primary residence.

Investment property– The investment property is purchased by a person to generate income by renting it out or for the purpose of capital appreciation. These are occupied by tenants for a major part of the year.

The last two years have been appalling for the world due to the COVID-19 outbreak and have brought many changes in the work culture. The home became the center of all the activities of a person; be it work from home culture to fitness activities and entertainment.  The high net worth individuals who already had a second home could retreat to the comfort of their second homes away from the busy life of the metro cities.

Facilities and Amenities in second homes:-

Now other people are also looking for weekend homes or a second home where they can retreat for a period of time. The upper-middle-class and the middle class are making more money than before. Interest rates are the lowest in many decades and the property rates have not raised much in the past few years. There is a desire of people to move to bigger homes and live close to nature surrounded by greenery; resulting in a balanced life away from the pollution of the cities. As these places are not overcrowded people don’t have to worry about social distancing and are able to spend quality time with their families.

Some of the places where these second homes are located lack the basic amenities which the rich people are comfortable with. Many builders are coming up with a solution for this by providing amenities improving the living experience and making people comfortable. They are providing facilities catering to every need of the occupant, be it for work and play and the luxury homes come with facilities like badminton and tennis courts, swimming pools, gyms, golf courses, and other necessities.

According to a survey conducted by Property consultancy firm Savills India, 57-70% of the responding persons want to invest in a second home in two years’ time, priced at Rs. 2 crores or less, and 80% of the potential buyers want to hold these properties for more than five years. The factors these people consider important before purchasing a second home at a holiday destination are internet connectivity, health and wellness facilities, good connectivity with their home city, a spacious area, and finally the probable return on investment. The home could be even in a gated community offering security and facilities like a gymnasium, swimming pool, and health center.

The preferred destinations for a second home in India:-

The market for a second home is on an upsurge with the rental yields witnessing an uptrend. The advancement in technology has enabled sales from any place and also increased the income generation ability of the properties. Work from anywhere is the common norm now.

The people in the survey conducted would like to buy a home across the length and breadth of the country be it Kovalam in the south to Ranikhet in the north, Gujarat in the west to Shillong in the East, but almost three-fourth of the buyers would like to have their second home in locations like Dehradun, Nainital, Simla, Alibaug, Lonavala, Goa, Mahabaleshwar, Coorg, Ooty, and Wayanad.

Goa leads the demand in India for the second home with one-fifth of the respondents interested in acquiring a second home there. Rental yields are in the range of 4-7% and the majority of the demand is within the Rs 2 crore price range.

In Maharashtra, 29% of the respondents would like to invest in second home destinations of the state and the net yield of Maharashtra properties has been in the range of 4-6%. The key second home destinations are; Lonavala and Khandala, Karjat, Shahapur, Panchgani, Alibaug, Igatpuri, and Wada.

Uttrakhand has strict local ownership laws and it leads the demand for second homes in North India with a net yield of properties in the range of 3-6%. The main destinations here are; Dehradun, Nainital, Hrishikesh, and Ranikhet.

The other state that has demand for second homes in north India is Himachal Pradesh and the net yield in properties here has also been in the range of 3-6%. The key locations here are; Simla, Solan, Kasauli, Kullu, Manali, and Chamba.

In southern India Tamil Nadu comes ahead with a demand for second homes and the rental yield has been in the range of 3-4%. The key destinations for a second home in South India are; Kovalam, Coorg, Munnar, Alappuzha, Wayanad, Nandi Hills, Mahabalipuram, and Kadthal.

Religious places like Vrindavan, Dharamshala, Haridwar, and Mathura are also becoming popular as second home destinations.

International second-home destinations for Indians:-

Ultra-high net worth individuals for whom money is not a big constraint prefer to invest in international destinations for their second homes. There could be many reasons for this; their children could be studying abroad and the health infrastructure is much better in many of these countries. The preferred locations for these people are – London, Dubai, Scotland, Canada, Portugal, USA, Australia, Switzerland, Oman, Qatar, and Bali.

Tax benefit that can be on a second home

Mr. Ramesh has one house in New Delhi ad he is paying the EMIs. Now he gets transferred to Surat, so he decides to buy a house there instead of living on rent and lets out his house in New Delhi on rent to pay the EMIs. The question is can he take a second home loan?

Yes, Mr. Ramesh can take a second home loan and claim the tax benefits on the second home loan.  The home loan has repayment that consists of principal and interest. Under section 80C deduction on the principal can be availed to a maximum of Rs. 1.5 lakh; and even when you have a second home loan the maximum principal repayment would still be Rs. 1.5 lakh and the deduction can be claimed for more than one house.

There is a deduction available under section 24 on the interest payment too. On one house you can claim a maximum deduction of Rs. 2 lakh on interest payment.

When the first house is self-occupied and the second home is vacant, both the houses will be considered self-occupied and as per the 2019 budget, interest claimed on both houses can’t be more than Rs. 2 lakh. Now if the first home is self-occupied and the second home is on rent the rental income on a second home has to be declared and you get the standard deduction of 30 percent interest on the loan and municipal taxes paid. Up to Rs. 2 lakh can be claimed against other income sources and any loss above Rs. 2 lakh can be carried forward for the next eight assessment years.

Ways you can finance your second home:-

The following ways you can finance your second home:-

  • You can apply for a loan for your second home and the bank would do a thorough study of your financial position and would be happy to give loan if the value of your first property is greater than the second one. The other assets that you can take loan by keeping as collateral are shares, mutual funds or jewelry.

  • To obtain loan for you second home you can get loan against your first home which is given against the market value of the first property.

  • You can apply for a top up loan by which you can avoid to get again in to new loan talking process. The top-up loans are offered by banks to their existing home loan customers that they can use to borrow above the existing home loan.

The home loan has the lowest interest rates in the last few years and many state governments have reduced stamp duties and registration charges to encourage the sale of properties. So it is a good time to consider investing in a second home as this is a niche market, the demand for quality homes is very high and the prices will eventually increase. The buyer should evaluate all the conditions considering his savings and liquidity and the EMIs that he can afford to pay, as well as the returns from the property before making an investment.

dbssethi

After working for many years in the Marine industry it was becoming clear that I was filled with an entrepreneurial spirit and wanted to pursue my own passions and dreams.
Over the years of studying and dealing with my own finances, I wanted to share my experiences with other people. Personal finance is something that excites me the most and I am very passionate about it.
Entering the stock markets during the Harshad Mehta heydays and then the collapse of the market led me to search for answers and I read a number of investment books and with time was able to identify multibagger stocks. Along with my job I was also working as an insurance and mutual fund advisor but managing both was proving difficult. As I had saved sufficient money I thought of taking early retirement and here I am to talk about my financial experiences.

Leave a Reply

Your email address will not be published. Required fields are marked *