Photo: iStock
Photo: iStock

Why Indians are buying properties abroad

  • Slowdown in the Indian real estate market and the intention of settling abroad are the primary factors driving Indian demand for properties abroad
  • Keep in mind is the income tax implication on the returns and investments you make in real estate abroad

While the Indian real estate market is witnessing a slump, a report said that wealthy Indians are looking to buy property abroad. According to a report, London Super-Prime Sales Market Insight-Winter 2019, by Knight Frank, a real estate consultancy firm, “There was an 11% year-on-year increase in the number of Indian homebuyers in prime London markets in the 12 months to June 2019." Besides London, “other popular locations for buying properties include New Jersey and Atlanta in the US, Toronto in Canada, Melbourne and Sydney in Australia and so on," said Amit Goyal, CEO India, Sotheby’s International Realty, a real estate advisory firm.

WHAT’S DRIVING INDIANS?

So what’s driving Indians to buy properties abroad? In London, a drop in property prices recently attracted more buyers, said the Knight Frank report. “An effective discount of about 20%, taking into account the currency and price movements in prime central London in the period between the European Union referendum and October 2019 has benefitted Indian buyers."

But what about other locations? “When compared to investments in Indian markets, the yields for both capital and rental are higher (in some foreign locations). As the domestic economy hits a slow block, we can expect Indians to continue the momentum of investments in mature markets such as London that offer higher returns and relatively shorter holding period," said Shishir Baijal, chairman and managing director, Knight Frank India.

According to another report, Knight Frank Wealth Report 2019, 21% of Indian ultra high net-worth individuals (HNIs) showed an affinity towards purchasing homes outside India.

Another reason why wealthy Indians invest in overseas markets is that investing there can provide a hedge against the domestic economy and market risk. According to Indian Wealth Report, 2019, released in October this year by Karvy Private Wealth, a wealth management arm of Karvy Group, “Investment in global market through mutual funds, exchange-traded funds, direct equity and even immovable property contribute to portfolio diversification and also acts as a hedge against negative domestic events. The long-term average shows that INR has depreciated against the US dollar by about 4% per annum over the last 40 years." Besides, investors also benefit from depreciation in the Indian rupee, at the time of selling or liquidating the investment.

There are other attractions too. To start with, “most global cities have transparent real estate regulations when compared to India. For instance, the US has highly evolved regulations, robust healthcare facilities, good education institutions and better quality of life," said Goyal.

Also, many Indians consider buying properties in global cities with the intention of settling in those cities. “There has been an increased level of interest in emigration schemes and many HNIs have been looking at shifting their base to international locations as their future generations opt to stay abroad. A major amount of remittance is going towards the education of children abroad, supporting family members, and buying property abroad," said the Karvy report.

Note that many countries offer citizenship or allow a longer stay to immigrants who invest or buy properties there. “The EB 5 US Immigrant Investor Visa Program is available to Indian citizens. Likewise Canada, Portugal, Cyprus offer various schemes to attract immigrants," said Goyal.

THINGS TO KEEP IN MIND

If you have indeed made up your mind to buy a property abroad, remember that there is a limit to the money you can remit in a year, which means your property price can’t exceed that. Resident individuals are allowed to remit an aggregate sum of $250,000 per financial year (April to March) under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India. However, with the remittance limit applicable individually, buying properties jointly with a family member can widen your budget and options.

Another thing to keep in mind is the income tax implication on the returns and investments you make in the global market. When you buy property in another country, you are required to abide by the tax laws of both India and the country you are buying the property in. According to Indian tax laws, residents or ordinarily residents of India have to declare all foreign bank accounts and immovable assets in foreign countries in their income tax return, irrespective of whether they are earning any income from such investment or not. Tax has to be paid on any income, such as capital gains or rental income. Tax complexities may arise in the country of purchase as well. These may include obtaining tax registrations, filing tax returns and payment of property taxes, among others.

If you intend to settle abroad, buying a property may be a good idea. Some experts also suggest investment in foreign countries for hedging or diversifying your portfolio.

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