The Second Homes Market
Post Demonetization
by Mr. Ashwinder
Raj Singh, JLL India
Even though the Indian
real estate sector was going through challenging times in past 2 to 3 years, H1
2016 saw a positive turn in the market.
Compared to H1 2015, the period saw a
7% jump in volumes, with price corrections in the top eight (8) cities resulting in
better sales & reduction in unsold inventory.
The trend of buying second
homes or / vacation homes, as they are called, also saw an upswing.
1. Effect of Demonetization..!
However, demonetization
affected the entire real estate sector negatively, and for a short while, all
activity came almost to a standstill.
Merely because of demonetization in the
last 2 months of the calendar year, the sales volume of 2016 came down by 9%
compared to 2015, making 2016 the worst year in terms of sales performance.
In
the last quarter of 2016, sales nosedived by as much as 44% (year on year)
while new launches reduced by an unprecedented 61%.
Now, the primary sales
market (or new home / flat sales by top and grade A developers) is back to normal.
In
fact, the consumer traffic on all major real estate portals has returned in
force to the volumes seen in pre-demonetization months of August and
September 2016.
To understand the impact
on the Vacation Homes / second homes market, it is important to understand how does this segment
of real estate sector functions.
2. The dynamics that drive
the Vacation Homes / Second Homes market..!
Second homes / Vacation Homes are
generally bought by people looking either for rental income or / a family getaway
from the crushing everyday realities of city life.
With the curb on currency
and extra cash vanishing from the market, the appetite for second homes / Vacation Homes has
definitely reduced.
Only buyers with legal sources of income and an appetite to
invest through legal channels are currently interested in buying a second home / Vacation Home.
However, even these buyers are waiting for prices to go further south and the
market to settle down a bit.
3. Union Budget 2017-18 Impact..!
As though demonetization
was not enough, Budget 2017-18 also served a severe blow to those with second home / Vacation Home aspirations, primarily because the government has capped the income tax benefits on
the purchase of second homes / Vacation Homes.
The maximum deduction on interest is now capped
at Rs. 2 lakhs against the entire interest that was tax-free earlier, even
though there is a provision to carry forward the losses in 8 consecutive
financial years.
Even with this carry forward facility, it will still be a
loss-making venture for those trying to buy a second home / Vacation Home with loans, because
the interest on loans as well as on rental income will become taxable.
The
smart way out would be to check one’s investment portfolio and plan one's
finances in a manner that permits the enjoyment of benefits of a second home / Vacation Home without burning cash or / making losses.
4. Future scenario..!
It is not all doom and
gloom, however. Demonetization has resulted in price corrections not only in
the primary market but also the secondary market.
An estimated 10% to 15% price
correction has already happened in this segment, and more can be expected.
It
is now generally felt that trends will turn positive once RERA gets
implemented, interest rates come further down and the government cracks a whip
on Benami property holders.
As already states,
buyers have started coming back onto the primary sales market, with sales
enquiries rising visibly in the past 2 months.
An increase in supply of
affordable housing is on the charts, thanks to infrastructure status now having
been given to affordable housing. With prices already having come down, further
corrections and more stability expected in next 6 to 12 months, developers are
expected to offer better discounts and attractive schemes to convince
fence-sitters to start investing.
For those planning to
buy a second home / Vacation Home as an income-generating asset or for capital gains currently,
the market is still attractive if considered from a long-term perspective and
provided they sort out their investment plans and put their finances in order.
For those intending to buy a vacation home for their personal enjoyment, the
market in terms of pricing advantage is eminently favourable right now and will
improve even further.
About the author..
Mr. Ashwinder Raj Singh, CEO – Residential Services, JLL India
Media Relations – JLLR
(JLL Residential)
Arun Chitnis
Mobile: +91 9657129999
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