India’s retirement and second home market is expected to grow at a CAGR of 23.63% over the next 5 years

The pandemic has further given a huge boost to the RSH market in India. As the growth of many traditional asset classes has taken a hit, demand for second homes has increased dramatically.

The retirement and second home (RSH) market segment in India is expected to grow at a CAGR of 23.63% over the next 5 years. The current market size is USD 1.394 billion and is expected to reach USD 4.021 billion by 2026, according to the latest research from 360 Realtors.

At the beginning of the previous decade, the concept of RSH began to gain popularity in the country. Goa has become a natural choice, accounting for around a quarter of the market. Goa offers sun, sand and immense scenic beauty, thus attracting a large number of buyers. The coastal state has many townhouses, gated communities, and villa options. Alongside Indian buyers, NRIs have also bet big on Goa.

Abundant greenery, tea and coffee gardens, a plethora of entertainment and entertainment options, as well as smooth connectivity with South Indian cities such as Bangalore, Chennai and Mysore make Ooty and neighboring regions a privileged place to opt for a second home. In the north, hill stations such as Shimla, Solan, Dehradun and Mussoorie are major attractions.

The outbreak of the pandemic

“The pandemic has further given a huge boost to the RSH market in India. While the growth of many traditional asset classes such as apartment buildings, office buildings and retail units has taken a hit, the demand for second homes has increased significantly. Faced with the threat caused by the virus, many buyers have started looking for vacation homes to escape the crowded, busy and hectic city life. A growing push on the work-from-home culture or rather the Work from Anywhere lifestyle has further propelled the upward trend,” said Ankit Kansal, Founder and CEO of 360 Realtors.

According to 360 Realtors, between 2019 and 2021, the RSH market grew by around 89%, defying a general downturn in the real estate industry.

As demand for second homes skyrockets, average prices have also risen sharply. According to the research, Alibaug had the highest appreciation of 10.5% over the past 2 years. In Shimla, property prices increased by 6.45%. In Panaji, the average property price appreciation was more than 2%.

Meanwhile, amid growing demand, the RSH segment in India also offers a valuable rental income opportunity. A large number of corporate professionals, digital entrepreneurs, creative freelancers, professional consultants, technicians and coders now prefer to work in quiet, serene and scenic locations rather than the typical 9- 5. These buyers opt for renting houses for long stays. Many tourists now prefer these homestays over traditional hotels and resorts. In Himachal Pradesh, owning a property in Shimla or Kasauli can yield an annual return of around 2.75-3%. In Maharashtra, Lonavala can provide an attractive annual rental yield of up to 6%. Second homes in Goa can also offer rental yields in the range of 4-4.5%.

The path to follow

The RSH segment in India will continue to grow, supported by a rise in WFH culture, a growing tendency to avoid busy city life and the viability of second homes as a prudent investment option. As the fear of possible waves in the future persists, many buyers will also opt to purchase a second home to mitigate future risks.

Apart from regular locations in Goa, Himachal Pradesh, Uttrakhand, Nilgiris, etc., many city suburbs will also appear as viable RSH destinations. Besides townhouses, villas and compound residences; the concept of farm life is also gaining ground. Within 1-2 hours from major Indian metros, the concept of farmhouse style compound living is becoming popular. Such a life gives people a better opportunity to bond with nature.

“Farmhouses were also popular in India and were thought to be an extension of the Bungalow culture of the cities. However, in earlier times, it was only for the super-rich. Today, there are many options in the range of Rs 1-3 crore,” Kansal added.

The market is currently unorganized and dominated by local developers. However, trends are changing and big developers such as Tata Housing, Kalpataru, Provident, Axon, Lodha, ATS etc. are now entering the space, lured by the attractive return potential. The segment is also attracting the attention of institutional investors, which is a positive sign. In addition to the new projects, the many farmlands and resort properties will be rebranded as second homes to meet growing demand.