Recently, during the COVID-19 pandemic, a new wave of interest in international asset classes from Indian HNIs has emerged.
By Nish Bhatt
The Indian High Net worth Individuals (HNIs) have been investing overseas in a big way. Over the years, the total outward remittances by Indian citizens falling in this category have witnessed a significant increase. From $4.6 billion in 2014, they went up by over three times to $13.7 billion in 2019. The Liberalised Remittance Limit (LRS) in India increased from $125,000 to $250,000 in 2014. This allows Indians to physically release more money from the country to invest in foreign opportunities.
Wealth managers have noted that the LRS has been used not only as a route to purchase stocks for foreign companies but also to invest in real estate overseas. Recently, during the COVID-19 pandemic, we have experienced a new wave of interest in international asset classes from Indian HNIs. Apart from the LRS we also attribute this to the introduction of Tax Collected at Source (TCS). With the extension in the date for TCS on remittances to October 1, 2020, from the earlier April 1, more HNIs are seeking international opportunities.
While several reasons contribute to overseas investments, the basic incentives are the rate of return, investment policy and tax advantage. While a superior rate of return is what an investor looks at, steady growth with the safety of capital are other factors. Indian HNIs essentially invest overseas for immigration to set up a base in another country. This means, foreign citizenship to set up a second home and take advantage of the booming real estate market in certain countries.
Foreign education has always been a popular choice for many Indian families. Most investors find it worthwhile purchasing real estate overseas rather than spending money on rent for the duration of their children’s stay. Post their studies, the investment becomes one that provides good rates of return or becomes a holiday home. Transparency within the real estate market in developed markets like the EU, US and UK protects the investment. This also serves to provide a sense of security to Indian HNIs while investing in the overseas real estate.
Real estate as an asset class is generally favoured amongst Indian HNIs, as they often find very attractive potential rate of returns. As a result, foreign developers increasingly cater to HNI Indians as well as Non-Resident Indians (NRIs). In countries like Cyprus and Grenada, they offer a very attractive immigration services such as residency and citizenship, which require a real estate investment element. Additionally, Indian HNIs invest heavily in London’s real estate for their children studying in the city.
In recent years, central banks globally have reduced their cost of borrowing through Quantitative Easing (QE). This has allowed interest rates for borrowers to remain lower for a longer duration. Additionally, within the EU there is greater liquidity within the banking system owing to an increase in deposits. Consequently, the European Central Bank (ECB) has encouraged local banks to lend more.
The availability of credit provides Indian HNIs with the opportunity to borrow money in Europe for investment in new projects. Many European countries such as Cyprus have very competitive tax regimes encouraging Indian HNIs to expand into Cyprus and invest within the island nation.
With the international markets gearing up to welcome these foreign investments, Indian HNIs often consider different asset classes for investment. The 2019 Indian Wealth Report by Karvy Private Wealth, stated, “Investment in the 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.”
In these times of global churning across multiple segments, Indian HNIs are increasingly discovering that the opportunity abroad is very attractive in terms of flexible investment policies, rate of returns and tax advantages.
(The author is Founder & CEO, Millwood Kane International)