5 Financial Reasons To Buy A Second Home Instead of A City Apartment

A city apartment or a second home in a less urbanized (but rapidly urbanizing) area is an investment that is becoming more and more attractive to buyers, and for good reason.

The way urban property pricing goes up and rental yields tend to hold steady, a majority of home seekers and investors contemplate a very attractive alternative, "secondary homes".

Benefits of Buying A Second Home Instead of A City Apartment

Here are five financial reasons as per Mr. Amit Mamgain, Director, Yugen Infra.

1. Higher appreciation potential

Second homes in growing tourist or tier-2-class markets tend to have lower entry costs and faster appreciation. When infrastructure and connectivity improve, property value in such areas tend to increase more than that in saturated city centers.

2. Better rental yield from vacation rentals

While city apartments usually require long-term tenants, second homes can be chartered out for vacation rental purposes on such platforms that pay better returns per night. Peak seasons can pay for the bulk of annual costs, so it's an attractive investment.

3. Lower maintenance costs

Apartments in metropolitan cities usually attract higher maintenance costs, higher society charges, and costs of repair because of higher footfalls and usage. Second homes are usually intermittently used and thus attract significantly lower upkeep costs.

4. Tax relief

Interest paid on a second home loan can be allowed as a deduction in income tax under some provisions of the Income Tax Act in India. Also, depreciation as well as expenditure related to property can be claimed if let out.

5. Diversification of assets

Investing in a second home diversifies risk geographically and across types of property. It also provides the chance to balance lifestyle objectives and wealth creation, a win-win for long-term planners.

Moreover, for those planning beyond mere square footage, a second home can be a secure financial asset, a rental revenue source, and a serene personal escape all at once.

The primary advantage second homes offer relates to their far lower acquisition cost. In a city such as Mumbai or Bengaluru or Delhi, real estate prices are beyond the reach of the common man, frequently requiring at least Rs 1 crore for a decent apartment. In comparison, smart cities such as Dholera are providing plots and new homes at a fraction of the same cost after which you can also avail the property without overburdening your financial condition.

Second homes in developing areas are more likely to increase in value as time goes on. It is adding to the stock in all investments in real estate, particularly residential, where in some of the supposed metro cities of India, the urban property prices are stagnant on account of both infrastructure saturation and affordability constraints driven by policy.
On the other hand, infrastructure-driven growth corridors such as Dholera—which is the first smart city in the DMIC (Delhi Mumbai Industrial Corridor)—are all set to take off.

Third, for a good second home investment property in a convenient location, rental yields are commonly higher than for an ordinary city flat. It is especially so in the case of such housing being located close to tourist spots or burgeoning information technology and industrial areas. Amid the ascendance of hybrid work and digital nomadism and weekend tourism, second homes in beautiful or strategically placed locations are in high demand on short-term rental sites. This trend can help the investors earn a consistent income through rent and also have the option to use the property.

The other financial aspect includes the various tax benefits and advantages. When structured appropriately, ownership of a second home could fetch deductions on home loan interest (Section 24(b)) and principal repayment (Section 80C) as per Income Tax Act. If the second home is also rented, maintenance costs of this home, and even property taxes may be deducted from rental income, contributing to taxpayers' best interests.

Finally, long-term diversification is a key financial strategy that makes sense of a second home over a city apartment. Depending on one asset class in one urban area exposes investors to area risks such as future policy changes, overbuilding or economic downturns in that particular city.

Siddharth Maurya, Founder and Managing Director, Vibhavangal Anukulakara Private Limited said, "There is a considerable shift in mindset of contemporary investors who are looking at long-term asset growth and income diversification rather than merely owning a city apartment as a status symbol. Second Homes in emerging destinations such as Dholera offer better appreciation, higher yield and more importantly, lifestyle enhancement with urban property appreciation reaching its peak."

You could do no better than to execute this right now and as India's new growth story plays out beyond the metro cities, second homes in up and coming places offer far greater appreciation and also a more diversified and accretive investment story.