Thursday, March 4, 2021

Report - Property Investment

Retiring in style



ARVIND JAIN offers his perspective on the second homes market



In India, eventual retirement is something we plan for well in advance. This includes identifying the right place to retire. While a significant number of retired Indians continue to stay with their families, the trend of investing in a retirement home – or a second home which will provide rental income during retirement – is becoming a major market force. A retirement home and a home purchased for rental income are, of course, separate concepts. The first in meant for habitation by the owner, while the second is meant to generate revenue. People tend to choose their retirement homes in areas which are far enough from the city chaos to be restful and soothing, yet close enough to provide ready access to their families, healthcare and shopping facilities. As such, the  location of choice for a retirement home will tend to be in or around one’s city of origin, or in around another city with which one has close and familiar ties. Pune, once known primarily as a Pensioner’s Paradise, is still the most preferred retirement home destination in Maharashtra. This is because a significant number of Maharashtrians have some ties or the other with this city.




What Indians seek in retirement homes


The fact that retiring Indians will invariably seek to live as close to their immediate or extended families as possible is an important difference between what drives retirement housing in this country and in the West. Indians do not display any significant preference for relocating to an entirely unknown city for their retirement.


Another important difference between the West and India is that in India, a residential property tends to be primarily seen as a bequeathable asset, rather than a liquifiable one. In other words, Indian seniors who own retirement homes will hope to pass these homes on as an inheritance to their children and grandchildren. That said, they will still take comfort from a healthy appreciation trend for such a property. They will see their retirement home as a safeguard against unexpected setbacks which, without a fall-back option, could make them financially dependent on their families again. This important dynamic is, in fact, one of the main reasons why reverse mortgage has failed to find significant traction in India – property held by seniors is generally monetised only as a last resort.




Second homes as income generators


Young, well-paid Indians are the driving force behind the second homes market. Most young Indians invest in second homes in order to set up an alternate income stream while they can service a mortgage with their salaries. This may or may not be part of an eventual retirement plan, since the youngest of these investors (up to age 32-34) are driven by speculative intent. This means that they have their sights set on buying low and selling high, rather than on a steady rental income. Rental income rather than capital appreciation becomes a more prominent motive for investors in the age group of 38-40. By this age, Indians are already thinking seriously about their retirement and have lost their appetite for adventurous speculation. In the real estate context, second homes can represent a different ballgame than retirement homes. Since either capital appreciation or rental generation potential tend to the priorities, second homes bought for investment purposes need to be in locations which have a good demand profile. This means that avoidance of central city chaos cannot always be an operative factor.


Therefore, second homes purchased as investments can rarely double as retirement homes, unless they are in a large integrated township.


– The author is Managing Director, Pride Group

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