For those of you whose passports read like a multilingual novel, here are a few things you need to know as you prepare to invest in that little house somewhere far and exotic
Remember your uncle and aunt, yes, the doctor uncle and the doctor aunty. He was a cardiothoracic surgeon and she was a gynecologist. They were the couple who sent both their kids, your cousins to study at Ivy League universities.
And after the kids graduated, the doctor couple sold everything that they owned in India and bought a house, abroad. This was so they could be closer to their kids who were both marrying an NRI, each.
Yes, that was kind of a huge family event wasn’t it. The entire process of investing in a property on the other side of the world, a home they had never stepped into ever before.
Well, this phenomena of affluent Indians investing in properties abroad has become so much more common place and that much lesser of a dramatic event. It’s come down to a question of, “It’s time to move, which cuisine suits me better?”
What brought about this change in the nature of the loaded Indian’s property investments?
One reason would be availing of the coveted ‘citizenship’ status in the host country. For example, according to Forbes, Cyprus, which is actively courting foreign investment in property, bills itself as a destination that allows you to live and work in the European Union.
Buy a house for €300,000 and you (the person making the investment) automatically get residency in Cyprus.
The second reason would probably be the competitive interest rates that local banks in the host country offer as opposed to their Indian counterparts. The third reason is unfortunately the lack of ‘clean’ property deals in the country.
Many international property markets boast of more transparent, faster and easier processes.
Who are these well heeled Indians who want to invest abroad? Isn’t holidaying enough?
The expansive network of these prosperous Indians began their explorations into overseas investment primarily because of personal reasons like the aforementioned doctor couple, parents who wanted to live closer to their kids.
The gradual increase in awareness of international asset options and increase in avenues through which these options could be explored, valued and finally owned led to a seemingly never ending list of alternatives.
Amongst the usual suspects are also mid-to-top level company management, high net worth individuals and hardcore property investors.
According to a Forbes article, here is profile of this Indian.
“These buyers are not first timers feeling their way around the property market. They’re smart, well-travelled and have already done a great deal of research on the internet. Aged between 30 and 50, they’re on average making their third property investment.
They already own the house they live in and a holiday home is a short drive from where they live. They’re either successful businessmen or entrepreneurs who run their own companies. And now they’re looking for a foreign address.”
Name the investment hot spots that Indians usually indulge in. Also, what are the slightly more adventurous places that Indians have chosen to invest in?
According to prominent property consultants like Jones Lang LaSalle, Cushman & Wakefield, CB Richard Ellis and Knight Frank, a few of the most frequently invested-in countries are Singapore, Srilanka, Malaysia, New York, Dubai and Mauritius.
Having said that, U.S. and U.K- especially London still hold prominent position amongst Indian investors.
The more adventurous lot of Indians explore places like Muscat, Oman and even areas just outside of Nairobi and Kenya. There are a group of Indians who invest based on their trade like the diamond traders of Mumbai invest in Macau.
With the number of queries on foreign investment skyrocketing, Knight Frank has formed a specific team to tap in to this business opportunity.
Alright, I am ready to invest in an international property. What should I start thinking about, right about now?
One of the first things is figuring out the funding.
A not so affluent Indian wouldn’t really stand a chance to buy that dream property off the coast of somewhere exotic, because Indian banks do not lend to buy property abroad. And banks abroad do not lend unless the buyer is a citizen or has assets there.
Considering the latter is not the case for many, these foreign real estate transactions take place through personal savings.
But apparently, such wealth comes with a lot of do’s and don’ts. The Reserve Bank of India (RBI) has placed a cap on the amount that can be invested (in real estate or otherwise) in a year by an Indian.
The cap is set at $2,00,000 per annum and this makes certain central locations like London City, penthouses in Singapore and Dubai inaccessible to most.
The loophole is that this limit is carved for individuals alone, therefore if an Indian couple were to invest, the amount will double in their case. But this does not get you the kind of budget needed for that penthouse in Singapore.
Options include investing in the children’s name that increases the aforementioned limit or family members could partner and buy a home. According to Forbes, it’s a great agent who can come up with a solution best suited for the investor.
Countries like Mauritius, Bhutan, Sri Lanka and certain parts of UAE offer another way to lighten the burden which is to enter in to joint ventures with local foreign entities. This option affects the investment cap and profitability very positively.
Another thought that might cause concern has to do with what is called the Capital Gains Tax. This tax is levied on the profit from the sale of a property. If an Indian with deep pockets decides to make an international investment, he will have to pay the capital gains tax and only from the remaining money can he buy the new property.
Well, as hard as you have made this, I have figured out how to foot the bill for that amazing chalet in the hills of somewhere stunning. So what’s next?
Being aware is what’s next. The chances of one being looted of their hard earned millions is quite a possibility if one does not do their homework.
An article by Jones Lang Lasalle, India advices against doing business with an international entity that does not have an Indian representation. A detailed study of international property law is also important as in some countries, land laws for investment in immovable properties can be quite tricky to understand.
An added point of caution is to verify your eligibility to invest against the permissions set by the international government. For e.g rules similar to the one RBI has set with the $2,00,000 cap