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How to make the most of a second home investment

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There are several factors to consider before buying a second home, to derive the maximum benefits on the investment, in the long run. We explain…

A large number of second-home buyers purchase luxury homes that provide them with a retreat away from the city, where they can relax and rejuvenate. According to Sunil Sharma, VP – marketing and CRM, Mahindra Lifespaces Developers Ltd, the growing population of high net worth individuals (HNIs), has spurred the demand for second homes. “For some, a second home represents a post-retirement recreation option, or the opportunity to pursue one’s hobbies and interests. However, second homes are also increasingly viewed as a long-term investment option, with rental income and capital appreciation,” says Sharma.

However, recent changes in tax laws, in the financial year 2017-18, have changed the home buyers’ outlook towards investing in second homes. One main reason, is that the deduction of Rs two lakhs, available on home loan interest, is now the same, for both, rented and self-occupied property. Moreover, the loss on house property that can be reduced from ‘income from other sources’, is confined to Rs two lakhs only. As a result, many salaried employees and businessmen, who sought second homes so that they could reduce their tax liability, are now looking for other means to earn returns.

Should one buy a second home for investment/rental income?

Most second home investments range in ticket size of Rs 40-80 lakhs, with houses in the premium segment. Earlier, buyers bought the property from an investment point of view and kept the houses vacant for the most part of the year. The return on their investments, came only when property prices increased, over many years. “However, with changing times, a lot of people have started giving their houses on rent,” says Amit Wadhwani, Director, Sai Estate Consultants. While the capital value of the second home will appreciate over time, it can also generate money in the form of rentals, which not only takes care of the maintenance costs but also adds to one’s savings. Moreover, this allows the investor to have a diversified investment portfolio.

Rohit Poddar, managing director, Poddar Housing and Development Ltd, explains that “Rental income yields on residential property, are typically three percent, depending on the market and can go up to five per cent if one buys an under-construction property. This alone may not be a sufficient reason to buy. So, one should buy only if there is an expectation of capital appreciation, as well.” Wadhwani adds that the new laws and policies brought in by the government, have also eased the entire process for buyers. “With RERA and GST coming into the picture, investing in second homes for rental income, will increasingly become a trend,” he maintains.

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