Why are more young individuals investing in holiday homes in small-town India?

Accelerated by the pandemic, young buyers are looking at flexible work options and earning potential returns from investing in properties across holiday destinations in India

Until a few years ago, buying real estate in the form of a holiday home was typically considered the preserve of high net individuals (HNIs) and Ultra HNIs, especially NRIs looking to invest in real estate in India. The market has seen a shift following the COVID-19 pandemic, as a younger generation of Indians between their mid-thirties to forties look towards purchasing property in holiday destinations around the country. 

According to a research report by 360 Realtors, second homes or holiday homes in India have become immensely popular after the pandemic. The aggregate size of holiday homes by the end of 2021 amounted to US$1.394 billion. This is a jump of 88.63 per cent compared to pre-COVID times in 2019. The report states that increasingly, entrepreneurs, lawyers, doctors, senior corporates, artists and technology professionals are buying second homes, drawn by the prospect of being away from the hectic pace of city life. A growing work-from-home, or rather, work-from-anywhere culture, is also fuelling the demand within the market for second homes in India. 

While destinations like Goa have been a top favourite, thanks to its easy accessibility and growing infrastructure, in northern India, mountain locations in Uttarakhand and Himachal Pradesh such as Dehradun, Kasauli and Shimla are becoming popular too, the report cites. However, cumbersome property rules which stipulate 50 per cent ownership for local domiciles have been detrimental in the home-buying process. Further south, destinations like Ooty and Coorg are showing traction. 

 A perceptible shift 

So, what’s led to this shift? According to Dhimaan Shah, co-founder and COO, Isprava—a luxury real estate firm with properties in destinations like Goa, Alibaug and Kasauli—while NRIs are very positive towards Indian real estate, it is still the domestic buyer that anchors most of the demand in this segment. “The need for more open spaces, cleaner air, privacy, security and a general higher quality of life has driven the demand for homes in non-urban locations across the country,” he says, adding that while demand continues to be robust with individuals in the 40-60 age category, a substantial portion of buyers are millennials and Gen Z whose disposable incomes are driven by high-paying jobs as well as start-up led entrepreneurship. 

Amar Merani, CIO & Head, Real Assets at 360 ONE Asset, an asset and wealth management firm, says that the demand is primarily being driven by the desire to own real estate that can also be monetised. With domestic tourism seeing an uptick and people discovering more destinations close to their home cities, there was an increase in the demand for vacation homes, for personal, as well as for purposes of monetising such assets, he points out, adding that up until now the market was largely fragmented and run by local developers. The entry of large players has made the space more structured.

Democratising real estate

There are some companies which are also helping democratise the process of owning a second home or holiday home in India. Mohit Gupta, co-founder and CMO, Equity Address, a fintech company which aims at modernising real estate co-ownership, says that while owning a holiday home is a dream for many, considering the capital requirement, there’s only a small section of people that end up purchasing a second home. “What we’re doing is getting buyers to make fractional investments in holiday homes to make ownership more accessible. Members can decide how many shares they can purchase in a home (typically around eight co-owners for one home). There are different ways through which one can earn income—be it buying the home as a vacation asset and earning rental income, or getting a fixed number of free nights to stay at the property each year and locking in the investment for a certain time period, Gupta explains.

Equity Address’ hospitality arm runs a holiday villa rental platform called The Venya, that complements its business model. Here, the platform manages the property and takes care of bookings, maintenance and upkeep. Currently, the average cost of these homes ranges from ₹ 2-8 crore with investments starting as low as ₹15 lakh per investor. These are luxury properties in places like Goa, Alibaug and Lonavala, ranging from villas to a handful of apartments and condominiums. “We have sold around 10 to 15 fractions till date and target to sell more as we move forward. We’re aiming to have around 200 retail investors by the end of FY24,” says Gupta.  

An eye on the market

Varun Talukdar, a senior finance professional, decided to forgo purchasing a home in Mumbai and instead bought a sprawling villa in Assagao, Goa, where he can also work remotely. While the idea was to be able to monetise the asset by renting it out periodically, he says that his decision, like most other young professionals—start-up entrepreneurs and the like—was to be able to offset capital gains. “Goa just made sense on so many levels. The infrastructure is growing and it’s an upcoming market,” he says, pointing out that he was also looking at Alibaug as an option but the lack of infrastructure and amenities, made him look at Goa instead.

Talukdar does caution, however, that the maintenance and upkeep of such luxury homes is quite an expensive proposition. There is an opportunity to monetise such assets but purchasing a home itself is quite the luxury, he notes.  

For Neha Khilnani, a Mumbai-based PR and marketing professional in her early thirties, the rationale to purchase a parcel of land in Panshet, located on the outskirts of Pune, was simple. “I’ve been looking to invest small amounts of what I’m earning in assets. Buying property in a city like Mumbai is almost unaffordable, given the high prices, so I started looking for options that would not just work as an asset for me, but also be a getaway from city life.” She adds that it was a practical call for her to build a second home or even a small wellness retreat at this location overlooking the hills. “I would end up spending much more at five-star wellness retreats on a yearly-basis. I can now treat this as extra income or just call it my own place.” 

Looking at gains 

Given that the rental yields and capital appreciation tend to be higher than their urban counterparts, it’s another reason why people are looking at second homes or holiday homes as a lucrative investment. Speaking about the average returns that one can expect on such homes, Shah says that the ones Isprava sold at ₹ 5-6 crore three years ago are now being sold in the secondary market at ₹10-11 crore. “Underlying land prices have also shot up anywhere between 100-200 per cent in the past two years. Interestingly, the capital appreciation on our larger estates has been even more robust with properties that we sold at ₹ 15-20 crore two years ago now being sold in the secondary market for ₹35-40 crore.”

As a new wave of hybrid working takes over and young professionals look at avenues to strike a better work-life balance, second homes are turning out to be an appealing proposition. There are also tax benefits and, not to forget, an overall aspirational value associated with second homes, making this asset class very popular, the report by 360 Realtors states. 

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