Most of us dream of a small house away from the madding crowd of the city - a house that's unlike the matchbox apartments that metro life forces us to live in. A holiday home, preferably a couple of hours drive from the city is what many would love to call a home away from home.

Thanks to the emergence of the affluent class in our country, many upwardly-mobile families are looking for holiday homes around the cities they live in. The sky-high real estate prices or scorching interest rates do not seem to ruffle this segment, which has deep pockets to take care of the extra change. "Holiday homes are fast catching up as a niche housing segment in India," says a research report by Cushman and Wakefield. Uday Dharmadhikari, CEO, Usha Breco Realty, adds, "The growing middle class, especially the younger generation, looks for a break from their work. Due to the cost of travel and other factors, they prefer to own a holiday home. The concept is gaining moment among selected buyers - mainly HNIs, NRIs and the upper-middle income segments," says Shailesh Sanghvi, director, Sanghvi Group. But before you book a holiday villa for yourself, you need to figure out a few things. Else, you could land yourself in a soup because a holiday home is an expensive proposition.

WHO SHOULD GO FOR IT?

Amit Goenka, national director, capital transactions, Knight Frank (India), says, "The option is preferred by those who have longterm surplus capital to invest in such facilities, given that such investments can be fairly substantial." For those who fall in the middle-income slab, it is advisable to stay away from investing in a holiday home, say experts. Says Dharmadhikari, "It would be better to first buy your own home before purchasing a holiday home." Concurs Goenka, "Home buyers could go for a second house property for family expansions and then consider owning a holiday home."

ZEROING IN ON THE LOCATION

Most experts are quick to point out that the distance from your residence is a key factor for choosing the holiday home. Says Goenka, "Any alternate home should be within a reasonable travel distance from the usual place of residence. You should not need advance travel planning or booking to reach the location." This will help save money spent on travel. Also, it would be easier to maintain your home and you could visit it periodically, points out Dharmadhikari. Also, keep in mind the potential the place has to grow. "Buy a home in a place that has potential to grow," says Shveta Jain of Cushman & Wakefield. That naturally leads to the question: How would you know if a location has potential to grow? "Planned or announced infrastructure and development projects add to the future appreciation potential of a location and can be an important consideration," says Goenka. Points out Sanghvi, "If the asset is in a location for holiday homes or second homes, then the appreciation of price and approvals on loans too will be faster compared to a secluded location where there is little security." While selecting the spot for your holiday home, see to it that there are sufficient facilities like outdoor or sporting activities, says Sanghvi. "Such locations should be supported by availability of essential commodities, groceries etc, labour for maintenance, security and upkeep, and basic healthcare facilities," says Goenka.

MAKING IT A SOURCE OF INCOME

Holiday homes need be not be just a luxury symbol. They can also earn money for you. For example, you can try renting it out when you do not have plans to visit it. "Since holiday homes remain vacant for a long time, they can also be leased to earn rentals," says Sanghvi. Adds Goenka, "The income arising from such rentals could be used to offset maintenance costs." Also, it can be a great investment. "Your holiday home will be a good investment if you have bought it in a location where greater appreciation is likely," says Dharmadhikari.

TAX IMPLICATIONS

Don't be under the impression that because it's a holiday home, you will get a tax holiday as well. A holiday home has tax implications. Says Milind Kothari, Partner, MZS & Associates, "Given the fact that a holiday home is a second house property and the same is not given out on rent, the notional rent from such property would be deemed to be the income in the hands of the joint owner (in proportion to the ownership) under the Income Tax Act, 1961 ('Act')."

However, you could claim deductions. "Further, the interest for the year on loan taken by any of the joint owners for acquisition/constructions/repair/reconstruction of such a holiday home is allowed as deduction from such notional rent to such a joint owner. A standard deduction (30% of rentals as reduced by property taxes) is allowed from such notional rent," says Kothari. A deduction could also be claimed in case of principal repayment on loan taken for acquisition/construction of holiday home. "If you sell your holiday home within three years of purchase, the capital gains (i.e. excess of sale price over purchase cost) on sale of property would be taxable as short-term capital gains as per individual slab rates. In case you sell your holiday home after three years of purchase, the capital gains (i.e. excess of sale price over purchase cost) on sale of property would be taxable as long-term capital gains at the rate of 20%," says Kothari.

THE FLIP SIDE

But remember, all is not rosy with holiday homes. Though the idea of having a place to go to for your short unplanned breaks may sound exciting, a holiday home is not easy to maintain." Maintaining a holiday home is expensive. And if you are not able to maintain it properly, then it will lose its value," says Dharmadhikari. Moreover, holiday homes are difficult to sell. "This is because the purchase is not need-based, it is aspirational. Therefore, timelines could be stretched when you go to sell your holiday home," says Jain of Cushman & Wakefield.

Even if you are looking at it purely from the investment point of view, remember the appreciation levels are not great. "Appreciation in such areas does not take place easily," says Dharamdikhari. "Appreciation in such spots can never be in the same ratio as metros," reiterates Jain.

Source : ET Bureau