Back in the 1990s, owning a house or even an apartment in south Mumbai meant serious wealth. For the new rich, or ultra high networth individuals (HNIs) of today, to whom no place is too far to go and no price too high to pay, that address is pretty much passe.
“Some of the fanciest districts in the world, such as Kensington, Belgravia or Holland Park in London or prestigious locations such as the Burj in Dubai and Nassim Road in Singapore are among the most popular global locations for Indian ultra HNIs to own luxury residential properties,” Kotak Wealth Management and Crisil Research said in a recent report.
Indians were among the top five international real estate buyers in the US in the year ended March, according to the US National Association of Realtors. Indians, along with buyers from Canada, China, Mexico and the UK, accounted for some 53% of international property buyers in the US in the year ended March, according to a survey by the association.
The global financial crisis and recession that followed the collapse of Wall Street investment bank Lehman Brothers Holdings Inc. in September 2008 opened up the foreign real estate market to Indian buyers. As European and American home owners struggled to repay their mortgages, and property prices plunged, Indians who had the means pounced on the opportunity.
Money is no object. According to the Forbes Billionaires List, the number of Indian billionaires increased to 55 in March from 48 last year. The combined wealth of Indian billionaires as of March 2013 was $189 billion, which, to put it in perspective, is roughly one-and-a-half times the size of Bangladesh’s economy or three times the size of the Sri Lankan economy in 2012, according to International Monetary Fund (IMF) figures.
Kotak and Crisil, in their 2011 Top of the Pyramid report, defined an ultra HNI household as one having a minimum average net worth of Rs.25 crore, essentially accumulated over the past 10 years. The latest report pegs the number of such households in the country at more than 100,900, which is poised to more than triple to over 329,000 by 2017-18.
The 2013 report says that driven by increasing globalization, comparable valuations overseas and investment considerations, more and more ultra HNIs are purchasing luxury properties abroad in places such as Singapore, London and Dubai.
The report says that prime residential and commercial property in relatively risk-free locations has always attracted investors in times of economic and political turbulence.
“There is something comforting about tangible assets that, barring natural disaster, will retain their inherent value over time, even if prices dip in the short term,” says the report.
“Wealthy investors are also starting to buy into recovery, breathing new life into previously moribund markets such as Dubai and Dublin.”
A majority of real estate buyers on foreign shores comprise people who are looking for a second home or a place to holiday in, and for those whose children are studying abroad.
“Education- and business-related interests are the major drivers behind such acquisitions,” says Mudassir Zaidi, national director, residential, Knight Frank India.
Australia, the Middle East—including Dubai, Muscat and Abu Dhabi—and the UK (especially London) and the US are the prime locations, says Zaidi.
Then there are people who are working outside India and for whom buying a home in the country they are employed in makes more sense than buying one in India.
“Consumer knowledge has grown tremendously and the Indians buying abroad are doing so with more information than ever,” says Parikshat Chawla, general manager, international sales and marketing, Homestead, a real estate developer.
“Understanding of the markets has changed,” says Zaidi. “More and more Indians are buying property outside the country today compared with five years ago.”
To be sure, the ardour to buy property overseas has been culled by an August move by the Reserve Bank of India (RBI) to restrict investments outside India in an attempt to stop outflows of dollars and stem the rupee’s decline against the dollar. The central bank has subsequently clarified that the measures are temporary.
Zaidi admits that buyers have become more cautious after RBI’s move.
“Due to this change, investing in properties abroad is not a viable proposition anymore,” says a consultant working with a global property consultancy who asked not to be identified. “Moreover, for the builders abroad as well as the global property consultant, marketing global properties in India is not attractive any more.”
“But it is too early to say how this is going to impact the buying behaviour of people,” he says.
There are reasons why buying property overseas has become attractive to Indian buyers—the growing population of cities such as New Delhi and Mumbai and rising prices of real estate at home.
According to Knight Frank’s Prime International Residential Index, residential real estate prices in Mumbai are now on par with those in cities such as Dubai, Los Angeles, Miami, Rome and Tokyo.
The choice of location is the predominant factor, according to the TOP report. “All other things being equal,” the study says, “factors that come into play in the purchase decision include, among others: the extra lifestyle benefits (such as a clean environment, better managed public infrastructure, entertainment facilities, health and sanitation) that accrue in cities such as London and New York; and the safe haven status that some of these cities offer (because they have been able to better withstand global financial and economic turmoil).”
“Today’s Indian consumer buying properties abroad is backing up his/her investment with solid reasoning,” says Chawla. “For tax-free investments people are looking at Dubai, Singapore tops for its proximity to India plus its booming economy. For returns on rental investment the current favourite is London.”
In reality, however, tax forms only part of the picture for the rich when it comes to buying property, according to the Knight Frank report. “What they really value…is the lifestyle that comes with an open, cosmopolitan environment and both personal and property security.”
“The other important factor when choosing a second-home location was its potential to provide a long-term safe haven for capital,” says the report.
According to Chawla, familiarity with markets is the biggest “make or break” factor for all Indian consumers. “Despite the many attractive options available widely, Indians still gravitate towards tried-and-tested markets mostly.”
The size and the scale of property purchases differ according to the need and resources of the individuals as do the prices.
“London and Singapore are the most popular and also some of the most expensive markets. Usually, a good starting price for a decent property in these places is around $1 million. Dubai and Malaysia present opportunities to grab early-stage investments (i.e. bargains) and a good price there would be around $300,000,” says Chawla.
Understanding of the markets is changing, says Zaidi.
“For homes that would cost around £2-3 million in India, people are now willing to shell out upwards of £10 million in London,” he says.
Some of the properties in central London, which is one of the most popular destinations, would cost anywhere between £3 million and £15 million.
Deepshikha Bhardwaj contributed to this story.