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How to buy a second house which is a luxury property?

Posted on 28 Feb 2024
Author: Sayan Sircar

Tags: House Purchase

6 mins read
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This article gives you some points to think about if you are buying a second house which is a luxury property.

How to buy a second house which is a luxury property?

This article is a part of our detailed article series on the concept of buying luxury properties. Ensure you have read the other parts here:

What should be your income to buy a luxury property in India?

This article shows the minimum income needed to buy a luxury property in India.

How to buy luxury property in India from salary income?

This article helps you figure out how to purchase real estate priced over ₹1.5 crore.

📚 Topics covered:

Introduction
How to fund your second house?
- Via home loan
- Via own funds
Which builders should you choose for your new house?
What to do with the old house once you shift?

Introduction

This is the second part in the series of buying luxury real estate. The first part, which talks about buying a luxury property as a first house, is here: How to buy luxury property in India from salary income?.

In this article, we will consider the case where you already have a house of your own and now planning to purchase to a new luxury house. We will consider a luxury property to be one that costs ₹1.5 crores or more.

How to fund your second house?

Via home loan

If you are planning to take a home loan for the second home, you need to check how much capacity of EMI payment you have left. There are two limits:

the bank enforced limit of total EMI/monthly income being less than a typical 30%
how much extra EMI you can afford to take on given the investments you are making for your other goals

You should of course buy the property jointly with your spouse if possible due to multiple benefits: Home loan tax benefits that you get when you buy a property jointly with your spouse.

Via own funds

Given the high price of luxury properties, you need to consider how much down-payment you are planning to put in. The bank will insist for a minimum of 25% in most cases.

Warning: If this is a resale property, the bank will only give a loan as per the registration amount which can be lower than the market price

If you have a large windfall from

another property sale: How Section 54EC helps you save tax when you sell property
profits in the stock market: Sec 54F: a hack that can save lakhs in taxes when you buy a house
company stock like RSU or ESOPs. These also get Section 54F benefit
an inheritance that you recently came across

then you can use that amount for the down payment.

If you change your mind at any point regarding this purchase, you can always calculate your returns and exit if needed: How to correctly calculate returns from an under construction flat?

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Which builders should you choose for your new house?

We need to check for these things for the builder who is offering the property:

reputation in the market for timely deliveries
active RERA registration for the respective state
no active court cases or disputes regarding the promoters or executives
the builder should be preferably listed on the stock exchange to promote complete transparency on financials

Such properties will be predictably more expensive than those without all these checks being true.

To understand how to fund a luxury real estate property:

What to do with the old house once you shift?

We are assuming that the whole purpose of purchasing the luxury second house is to live in it. The question that arises is what to do with the older property once you move to the new one.

Option 1: Sell the old house

If you sell your old house once you move to the new one, you can pay off a large part of the new home loan and also save capital gains tax.

Option 2: Keep the old house on rent

If the rental yield on the old house is above market rents in that neighbourhood for similar properties, you should keep it on rent for at least some time. You need to consider the after-tax rental yield and any maintenance cost.

Option 3: Stay in the old house and give the new house on rent

This option does not make a lot of senses unless there are any of these reasons:

the old house is convenient for schools, office commute or neighbourhood
you have elders in the family who you need to take care of and cannot move
the new house is in a neighbourhood that is still developing

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