By Lavanya Anand
Economies across the world are recovering from the shocks administered with the onset of the pandemic in 2020. Industries like tourism, travel and real estate are showing signs of recovery. One of the learnings from the pandemic has been that life as we knew it is gone. A new normal has set in, which will require a new approach to life. That includes a fresh take on investments.
That Indians HNIs have taken cognizance of this is reflected in the increase in the number of people buying property abroad.
Buying a home in another country offers many benefits for well-heeled investors. Currency fluctuations impact the value of property purchased abroad. From around Rs 45/$ in April 2010, the rupee has depreciated to about Rs 82/$ in March 2023. If this trend of a weaker rupee against the dollar continues, returns on foreign real estate become more attractive with capital appreciation and rupee depreciation.
Including real estate purchased abroad in one’s portfolio has many advantages that can leverage the uncertainties of risk assets. Investors should assess their risk appetite and take the plunge into global diversification.
The world is, after all, only a global village. Over the years, Indian HNIs have invested in UAE, US, UK, Canada, Portugal, Spain, Cyprus, Malta, Greece and Australia.
Citizenship by Investment programs have taken off in a big way in various European and Caribbean countries. These programs enable investors to get a permanent residency permit and, in some countries, citizenship through investment in properties.
For example, various countries in Europe offer residency for those buying property or making investments starting from an affordable Euro 280,000 to Euro 500,000 which is about Rs 2.5 crore to Rs. 5 crores.
Investors need not disrupt their everyday lives and have to spend less than a month each year to retain and renew their resident permits at stipulated intervals.
Indians dominate the market as among the top international buyers of properties in Dubai. The government in Dubai allows 100% ownership of businesses without the need for a local partner.
Proximity, high construction quality and a quick rebound in business activity have resulted in many Indians making a beeline for the UAE’s Golden Visa program. Spending on a similar property in any Indian metropolis would be on average 20-25 % higher than in the Middle East.
Apart from offering the benefits of a clean and transparent deal, fast-growing developing economies offer multiple opportunities. However, it often comes at the cost of quality of life. India accounts for more than 50 % of the world’s most polluted cities in the world.
The pressure on an already crumbling infrastructure and traffic congestion makes it impossible to partake of the benefits of economic growth. A property in a buzzing international destination like London, Dubai, or Singapore can become an anchor as a vacation home.
Those whose professions allow the freedom from being attached to an office in a city can stay in these cities as NRIs and work through different time zones. Many of these developed countries offer better healthcare, education, and infrastructure. If one can afford it, it may be worthwhile to obtain a resident permit for a better lifestyle.
Better rental yield
At around 2-3 %, the rental yield in India is among the lowest in the world. Rental income is seldom the reason for investment in real estate in India. Thus it makes sound economic sense to invest in property that not only earns a stable capital appreciation but a robust rental yield too.
In European countries, rental yield can average between 5-6 %. Dubai also boasts of a rental yield of 6-8% while some South Asian countries like Thailand can return rental yields of up to 5%.
The number of Indian students pursuing education in foreign universities has seen a steady increase. A key factor in sound financial planning involves investing in property in a foreign country years ahead of the start of the academic year. This could provide the stability and familiarity a child needs to explore life in another country.
Financing and Taxation
Negative interest rates in many developed countries enable property purchases to be financed at a competitive cost which can also be covered if the property is let out. Real estate transactions in developed countries are transparent and well-structured thus safeguarding buyers’ interests. However, one has to bear in mind that global income including capital gains, rental income, and income from other sources of resident Indians is liable to be taxed under Indian law. Some countries offer tax sops for real estate investments where rental income or capital gains may be exempt from tax locally.
(Author is Director of International Real Estate Expo (IREX) & IREX Residency & Citizenship Conclave)