Shiloo Chattopadhyay, former Chairman of market research firm TNS India, had a childhood dream: to own a home overlooking the Ganga. That dream came true three years ago when he purchased a 3,000 square feet house in the Shyamolina complex, located on a bend in the river in Raichak near Kolkata. Chattopadhyay visits his second home almost every weekend and often invites friends. He is not looking at the house as an investment, though he accepts that financially, it was a calculated risk. "I'm not looking at the option of selling out," he says, but adds that if he did exercise the option, he would make a tidy profit on his investment.

Himanshu Gandhi runs his own electronics component company in Mumbai. He recently bought one acre of land in Karjat, near Mumbai, where he is building a house. "It's a weekend retreat as well as something for my children when they grow up," he says. He is not really looking at his investment appreciating by the year. A 5-10 per cent increase over a few years is what he expects. And yes, he is thinking of investing in a third weekend home in the Sahara-promoted Amby Valley project.

Chattopadhyay and Gandhi represent a new breed of upper-class individuals who are buying second (sometimes third) homes for pleasure and for investment. ''People nowadays seldom buy second and third houses purely for investment,'' says Harsh Neotia, the Managing Director of Kolkata-based Bengal Ambuja. ''Instead, these properties are treated as weekend retreats, party pads and guest houses, with the inevitable capital appreciation thrown in as a hedge against inflation and future uncertainties.'' Pranay Vakil of Mumbai-based real estate firm Knight Frank agrees. ''Earlier, people used to invest in second and third houses with the expectation of cashing out when prices rose. In the last three-to-four years, though, very few people have invested in residential properties solely in the hope of appreciation.''

THE REAL COST OF AN EMI

Realty bytes: The craze is catching on Owning a flat today costs less than renting one," says Arun Poddar of Poddar Projects, who pioneered the condominium concept in Kolkata and sparked off the exurbia craze among the city's upper and middle classes. A combination of cheap finance, assessee-friendly tax breaks and changes in rental laws have combined to create this happy state of affairs. ''Under new laws (in force in most states) rents can be revised upwards every three-to-five years," says Poddar. "But the EMI on your home loan-which is comparable to rent for a similar flat-remains constant over the entire repayment period. You must keep in mind that the real value of the EMI keeps declining every year. And has anybody ever bothered to find out what the real value of an EMI will be 15 or 20 years from now?" he asks. "Also remember, that there's no downside risk on the investment. If you take a 10-year cycle and compare investments in real estate, stocks, bullion, or even investments in hot sectors like pharma, steel or it, you'll find that real estate offers the safest investment and is a surefire hedge against the boom-bust cycles of other sectors," he adds.

Joy Sanyal, the Head of the Western India consulting practice of Chesterton Meghraj Property Consultants, sees second-home buyers falling into three broad income categories: ''Super rich (income of Rs 1 crore-plus per annum); high income group (income of Rs 10 lakh to Rs 1 crore per annum); and middle-income group (income of Rs 5 lakh to Rs 10 lakh),'' with the majority belonging to the first category.

Since most second- and third-home buyers are high net worth individuals, they seldom resort to loans to fund their purchases. But Renu Karnad, Executive Director of HDFC, says banks are comfortable with people servicing two to three loans and paying multiple EMIs as long as their incomes cover their outgoings and they have not defaulted on any earlier loans. ''The number of people servicing two-to-three loans is relatively low-only about 10 per cent of total customers,'' she says.

Everyone we spoke to was unanimous that investments in housing properties begin to show returns only in the medium to long term. ''The quantum of returns is a function of investment, location, timing, extent of funding and speculative activity,'' explains Chanakya Chakravarti, Joint Managing Director of Mumbai-based realtor Cushman Wakefield. ''It's not always the best properties that appreciate the most,'' adds Neotia. ''Just as it is easier for a sick company's share to rise from Rs 3 to Rs 6 than a blue chip's one to double from Rs 300 to Rs 600, it is sometimes possible for lesser known, comparatively lower end properties to appreciate more than top of the line real estate.''

To guard against expectations of unrealistic returns, buyers (we're loath to use the term investors in this case) should keep two things in mind. One, investments in properties are generally long term, so one should not, as a general rule, expect returns in six months. Two, property prices have entered a stage of stabilisation after the great roller-coaster ride of the 1990s. Since 2001-02, prices have started increasing once more, but gradually. ''And leasing activity for residential properties, which is at a nascent stage in India, generates an annual return of 6-8 per cent of the value of the property,'' says Chakravarti.

Within a city, price escalation primarily depends on the availability of infrastructure. In Delhi, for instance, areas in close proximity to the Metro Rail line have seen prices increase 15 per cent over the past year, between 5 and 10 per cent more than other areas. In Mumbai, residential properties in suburbs such as Malad, Mulund, and Thane have seen prices increase at around 15 per cent over the past year because of the increase in retail, leisure and entertainment options (think more malls in suburbs) and improved connectivity. Prices in Gurgaon have skyrocketed for the same reason. "In the last six to 12 months, some Gurgaon properties have seen prices appreciate 30-60 per cent,'' points out Pankaj Renjhen, the Head of Corporate Services at Chesterton Meghraj. However, these rates are almost certainly the result of a high level of speculative activity and other local factors and should not be treated as indicative rates of return. People in the trade feel a more conservative 5 per cent increase a year is reasonable and can be sustained over the long term. So, if you're not looking to get rich at one stroke, are happy with steady returns, and are looking for a hedge against inflation, a second or third home could be just what the investment consultant ordered.

-additional reporting by Abir Pal and Amanpreet Singh