Beyond the borders

Written by Garima Pant | Updated: Sep 28 2009, 03:24am hrs
Studio apartments and country cottages in UK, condominiums in Singapore, and super-luxury homes in the Dubai or sea-facing villas in Australia. High net worth Indians (HNWI) are spoilt for choice as they explore distant lands to acquire their dream second or even third homes. And celebrities are not far behind. Shah Rukh Khan has reportedly bought an apartment in Central Londons posh Park Lane area for a whopping 20 million. Khan earlier purchased a villa in Palm Jumeirah, an exclusive man-made island off the coast of Dubai. And following the King of Bollywood are a whole foray of Indians eyeing property across global locales.

Being a recent trend, it is difficult to trace the antecedents of this phenomenon, feel industry experts. However, there has been a slight upward curve in such investments ever since the global economic downturn and the American subprime crisis rendered foreign real estate markets far more affordable than ever before. Wealthy Indians have been buying property in Dubai, a favourite location. Malaysia, Australia, Hong Kong and Thailand are the other hot spots fascinating Indian investors. And with a number of families preferring to send their children for higher education abroad, setting up a secure abode is also adding to the demand of Indians buying property abroad. Sandhya Mehta has just bought a studio apartment for her daughter Sanjana in Australia, who has gone down under to pursue her higher education. I want her to live in a secure surrounding and have a chance to be with her, whenever need be, says Mehta. And the cost Wasnt it a little too much for her pocket As long as my daughter is in safe surroundings, I wouldnt mind shelling the amount, she adds.

Prior to 2007, the maximum limit of annual foreign investment was very low in India $ 50,000. However, in 2007, RBI revised its regulation of the maximum limit allowed in investments outside India to $2,00,000 per year. This revision increased the interest of Indian investors in the foreign properties. Indians prefer to invest in the countries where they feel comfortable living. Japan and China are not among the most preferred countries owing to reasons such as different lifestyle, language issues and stringent government rules.

Increasing trend of second or holiday home in other countries and special citizenship benefits in a number of countries are the other prime reasons fuelling the growth of this trend. Experts point out that after the global economic downturn, realty prices across the globe have fallen significantly, making them accessible to the individual investor. But the quantum of investments that can be made outside India under RBI regulations is still quite low, limiting the avenues for investment outside India, says Poonam Mahtani, National Director, Residential Services, Colliers International, a global real estate consultant.

Apart from Asia Pacific region, other preferred destinations are UK (primarily London), USA and Canada. But in these countries the investment is limited to the people who either stayed in these countries for a long period or their relatives or friends are staying in these parts of the world. Lack of knowledge and awareness of the realty projects in these countries are the main reason behind reluctance of a common investor, says Mahtani .

Growth fuelling demand

Steady increase of HNWI and global business presence has translated into a continued demand for residential properties in countries such as Singapore, Dubai and London. Moreover, these countries present a far greater spread of interesting opportunities for buyers in the Rs 2 crore plus bracket than cities like Mumbai and Delhi do, says Ujwala Rao, AVP, Capital Markets, Jones Lang LaSalle Meghraj. In Singapore too, owing to an increase in the trade activity with India. With superior quality of real estate available, a number of Indians going there for business or education purposes, the realty market has been attracting a lot of investment from India, says Pranab Datta, Vice Chairman and Managing Director, Knight Frank India.

Caution is the key

However, it is not always a rosy situation when it comes to global investments as there may be liability risks the buyers may be exposed to. In some countries, land laws for investment in immovable properties can lack transparency and be quite complicated. It is inadvisable to invest in any kind of project announced by a company or other seller that has no physical representation on Indian soil. The exception would be where one has personally established the legal and market bona fides of the seller. One must establish whether one is eligible to invest in the country of choice to begin with, says Rao.

In most countries, foreigners are not authorised to invest in the land. Thus, any land sale lucrative offer overseas should be properly scrutinised. Number of countries such as Dubai, Malaysia, Thailand and Mauritius among others offer special citizenship and retirement visas for the foreign investors. But no such provision is available with the investments in UK and Australia. Thus, the investors buying the properties seeking these benefits should properly understand the rules of the particular country before making any investment, adds Mahtani. Datta also suggests that people going in for local financing options need to be aware of the banking and financing situation of a particular country, before making a final decision.

Global investments

UK

The UK imposes no restrictions on Indians investing in UK residential property

Indian buying has been mainly in London and in the 0.6-1.2 million price range

Indian investment in UK housing could exceed 10-15 billion over the next decade

Malaysia

Foreigners may acquire immovable properties in Malaysia that are over 250,000 Ringgit. But with the State Authority consent is must

Foreigners can purchase all types of properties without setting up a company with the local equity partners

Dubai

No taxes on foreigners purchasing property and on the rental income

In 2002-03, Dubai government created freehold property zones in the city enabling the foreigners to purchase a freehold property. Earlier foreign nationals could get only leasehold properties

Australia

Purchase of brand new residential apartment is easy as the rules are simpler. The role of Foreign Investment Review Board (FIRB) is very vital with respect to the foreign investments in the country

As per FIRB, Second-Hand (Established) Dwellings foreign persons are prohibited from acquiring established dwellings for investment purposes (that is, they cannot be purchased to be used as a rental or holiday property), irrespective of whether they are temporary residents in Australia or not