Reality check on holiday homes

Plots or bungalows in far-flung areas take more time to give returns.

The recent advertisements of holiday homes are inviting — a picturesque house nestled in lush green surroundings with the caption reading: “Invest and soak in luxuries of life” or “An investment for generations”. And, above all, a three-digit price tag: Rs 199 or Rs 299 a square feet (sq ft).

Enticed by one such advertisement, Chirag Shah bought a plot in Khadavli, a Mumbai suburb, six years ago and constructed a bungalow. “I plan to use it as a holiday home and sell when development starts in the area,” says Shah.

There are many people who buy such properties as an investment. But they cannot be sold in haste. Since Shah purchased the plot in 2004, its value has risen 80 per cent. In comparison, the price of his Mulund residence has increased four times, or 400 per cent.

No wonder experts say purchasing big properties in far-flung areas for returns may not be a smart idea. “Their value does not rise as much as a real estate property inside the city. In addition, the maintenance cost is high,” says Pranay Vakil, chairman, Knight Frank (India). Here are a few things to look at:
 

EARN FROM HOLIDAY HOMES

On rent: If your house is in a city or a town, you can let it out full time. And, if it is in the suburbs, you can give it on rent for a short duration to picnickers. But you will have to spend on a caretaker or a guard and also take care of the food.

for weddings or parties: Villas and bungalows in the suburbs are also used as wedding and party venues. For parties, you may have to incur a cost for arranging food.

Location shoots: Television and film producers are always scouting for new locations to shoot films or advertisements. Again, a caretaker or a guard will be required.

Plots
At Rs 299 a sq ft, you can buy a 4,000-sq-ft plot for only Rs 12 lakh. But actual expenses begin only when you start construction. The cost of basic construction is Rs 600-700 a sq ft. This means if you are constructing a two-storey house, using one-third of your plot, you will spend Rs 16 lakh for only the basic structure.

Many owners keep spending on such plots from time to time. Some may opt for landscaping, build a small swimming pool, or even add a gazebo.

“The maintenance cost of self-constructed property is higher as it is used only a few times in a year. The access road and the area around the plot wither more if the house is surrounded by hills or the area has extreme climate,” says Raja Kaushal, executive director, BNP Paribas Real Estate Advisory.

Ready villas or bungalows
Real estate experts said most such schemes were a flop because of security reasons and poor infrastructure, including sanitation and power back-up.

If you are buying a ready-made second home, go for a reputed developer or an existing project that has a good track record. This will ensure security, including boundary walls and fencing, and stationing of guards. Infrastructure, too, will be on a par with what you get in the cities. “However, be prepared to shell out five-seven per cent of the property cost on maintenance,” says Vakil. So, even if the value rises 10 per cent annually, the rise after deducting maintenance charges comes to three-five per cent.

Vacation ownership
Under such a scheme, a person buys from a developer who rents houses to vacationers when they are not in use. For instance, RCL Homes is offering two schemes— rent back and without rent — at Karjat in suburbs of Mumbai, Lonavala, Khandala and Alibaug.

In the rent-back scheme, for a 425-sq-ft studio apartment (which costs Rs 9 lakh), the builder will pay Rs 3,500 every month and use the apartment as a resort home throughout the year. You will be allowed to stay in the house for a month any time of the year without paying any maintenance cost. For a one-bedroom-hall-kitchen of 675 sq ft (which is priced at Rs 14 lakh), you will get a rent of Rs 5,000.

While the concept looks interesting, it has failed to take off. “Occupancy of the property is not guaranteed. So, income is irregular, and in most cases, does not even cover the maintenance cost,” says Sunil Rohakale, executive director, ASK investment holding. He also manages the company’s real estate fund.

The appreciation of land prices in these second homes is lower than plots and ready-made properties, says Vakil.