Second COMING

Second COMING
The Economic Times, February 15, 2009, Page 10

Second home buys have dropped 30%, but for those who already possess one this is not the best time to sell off. Neha Dewan finds out why

THE LOW sentiments in the real estate market may be preventing you from buying a second home in the current scenario. But if you already have one, should you consider selling it off right now? While second home buys have dropped by about 30% in the first quarter of 2009, most investors feel that holding on to their ‘second home’ will prove to be a wise decision in the times to come.

Take the case of 42-year-old architect Joseph George (name changed) and his wife who have a second home in Dwarka in the capital and have no plans of selling it off. Despite average rental returns, they feel that it’s better to hold on to their second home investment. In fact, they even purchased a third house in 2008 in Cochin. And the reason is simple: they feel the price of the properties will appreciate and will eventually give them attractive returns. Ditto for businessman Mr Sehgal who had invested in properties in Delhi and Mumbai. He feels that the current market scenario is too dismal for a sell off. Renting it out, according to him, makes better sense. In fact, many feel that selling off their second home right now is not a suitable proposition due to the market dynamics. Sixty-one-year-old Pradeep Bhagat, who has a second property in Gurgaon, too feels that even though rental rates are seeing a 20-30% dip, it is best to hold on to the property as a viable investment.

Rajiv Sahni, partner (real estate practice) at Ernst & Young, says while the decision to sell a second home varies on a case-to-case basis, it is a better option to hold on to the
asset till the market stabilises in case the seller is not in urgent need of cash. “The overall economic scenario has affected the real estate market both for new and second home purchases. Reduced interest shown by NRIs, who are predominant buyers of second homes, is a significant factor.”

Anuj Puri, chairman and country head of global real estate consultancy Jones Lang LaSalle Meghraj (JLLM), feels that with the economic downturn, second homes as an investment option have currently taken a backseat for most buyers. “The demand for second homes has dropped by about 30% in the first quarter of 2009. The once flourishing investor market for this segment, which represented almost 50% of the whole second home market, has largely dried up. However, there still remains a component of genuine buyers who have the necessary cash reserves to act on a second home investment. This segment represents about 5% of the overall market, and it continues to buy. Also, recent figures show a slight increase of 5-6% in overall demand on the heels of a drop in lending rates,” he says.

But how badly has this segment been impacted considering that the real estate market is yet to gain momentum? R K Mittal, CMD of CHD Developers, feels that just like first-time home buyers, this segment too saw a decline during the last few months but was not affected as sharply due to the difference in the basic demographic profile of buyers. “This segment primarily includes NRIs, businessmen, top and middlelevel management executives in large MNCs and in many cases, they are successful professionals with a high disposable income. As such, the demand for a second home is able to sustain itself even during the current slowdown in the global economy,” he says.

Mittal adds that only those who bought second homes to earn quick profits will look at an early exit to cut losses. Other buyers, he says, will hold on before they can get a better return on investments. Agrees Navin Raheja, MD, Raheja Developers, “No, they are not selling their second home right now as the property prices are at an all-time low. They are in the wait-and-watch mode as prices in the future, say six to eight months from now are expected to appreciate. It is the time to buy. It is better to hold on for some time till the market sentiments improve upon and return to normalcy.”

However, if you are one of those who is looking to buy a second home right now, ensure that you choose the location carefully. Location wise, there are many areas that can offer lucrative returns on your investment. However, the choice of a location will depend largely also on whether one wants to buy for personal use, an investment or as a rental generating asset. JLLM highlights some key locations that can be attractive destinations.

In Maharashtra, buying into some of the well-placed schemes on the outskirts of Mumbai such as the Vasai-Virar region makes sense, as does Pune. Goa is preferable for South Maharashtrians who have roots there. In Madhya Pradesh, Bhopal works well because it has excellent healthcare facilities and environmentally serene surroundings such as lakes and a salubrious climate. In Gujarat, most enduser second home buyers gravitate towards Rajkot because many from the small merchant segment who have pursued business in larger cities already have investments and emotional roots there. Towards Delhi, Indirapuram is suitable. Developed for the middle-income group, there are many good projects coming up here. It also holds good appreciation potential in the medium to long term, just like Faridabad and Ghaziabad in Delhi NCR. Chandigarh is a favourite as it is a planned city with excellent infrastructure and therefore has high aspirational value.

Besides location, there are other dos and don’ts of investing in a second home. Debating upon appreciation, demographics, affordability and demand while investing in a second home is crucial. Being clear about the purpose of second buy on whether it is from a pure investment view or whether one wants to stay there is also necessary. “When one compares investment choices, one must compare the total return not just of the so-called average rate of appreciation. One must also compare the time, trouble and energy that one will put forth to oversee and look after the investment. It is good to invest in societies or condos as one gets good returns through rents,” adds Mr Raheja.

neha.dewan@timesgroup.com