Indian Market Scenario

In a country where majority of the people do not have decent homes and the volume of sales of housing units in Indian markets is under pressure,a growing number of Indians are keen to buy homes abroad, particularly in the United Kingdom.

According to Lord Andrew Hay, head of global residential services at realty consultancy Knight Frank, "Indians probably represent a broadest purchaser base of any incoming nation."

He said that in comparison to customers from the Middle East or Russia, who are just interested in owning "trophy assets," or the ones that are priced anything between 20 million to 80 million pounds, Indians are also buying relatively cheaper assets, which they would prefer to be their residence.

"Interestingly, the Indian purchaser base is much broader. Although there are some Indians buying trophy assets and iconic buildings and hotels, they are also buying a lot of 300,000 and 500,000 pounds properties in all of England," said Hay.

At least 70 percent would be for their own accommodation, he added.Hay also said that the phenomenon is not just restricted to London, but is being witnessed across the country. Increasing number of Indians is looking for good value investment across the U.K., he said.Hay said, "Indians are arriving in all different locations.

In London, in terms of numbers, they would not be much, maybe say five percent, but some of the purchases made were very significant. In other parts of the country, say north-west London, in Birmingham, in the Mid Lands, they are a very significant part of the market. In certain areas they would be 25 percent."

In terms of how Indian real estate is being viewed by the foreign investors, Hay said that though there is "confusion"and "ignorance" about the Indian market, it still ranks above China in terms of potential for investment in real estate.

Hay pointed out there were still lot of hurdles for property ownership in China, which were holding investors back at the moment. Also, investors saw far more transparency, legal certainty, economic and political stability and currency stability in India, than in China, he felt.

However, a number of people have returned disillusioned from India as well. The country needs to work upon areas like transparency in real estate dealings, ease of acquisition, permissions for development and others, to give investors confidence in the service and transparency of the Indian real estate market.

On the pricing of residential properties in India, as cities like the commercial capital of Mumbai in the western state of Maharashtra Mumbai and the national capital Delhi are often rated among the costliest places to live in the world, Hay said it was a challenge for most of the markets.

He said, "There is the same thing happening in the U.K. The developers want to build the best product to achieve the best margin, but that is not necessarily shared by the government or the local authorities who want to provide housing for people who need it."

He said that the price does not come down because of the demand. "I think since the demand is here in India, why would the prices fall?""Unfortunately, in India, there is too much clamor for price reduction," added Anand Narayanan, national director( residential services), Knight Frank India.Instead of falling, the prices of residential property should stabilize. "Nobody buys when there is blood on the streets."

Indians have topped the list of Dubai's most active real estate buyers as they view the city in the same league as London, according to a survey.

The relative geographic proximity to India and the large non-resident Indian population in the region are two further critical drivers for those looking to park their Rupees in Dubai's real estate market, according to real estate consultancy Cluttons.

"Unsurprisingly, Indian nationals topped the list of the city's most active buyers, with Dubai often viewed in the same league as London by this group," Faisal Durrani, Associate residential and international research at Cluttons, said.

"And now we're seeing the demand base broadening from individuals to institutional players. Britons and Pakistani nationals rounded off the top three nationalities that purchased property in Dubai last year," Durrani said.

This is further evidenced in Cluttons International Private Capital Survey 2013-14 which was released late last year. The survey found that within the region, Dubai ranks ahead of other global real estate investment destinations.

Cluttons surveyed nine global locations across the Middle East and Asia-Pacific region and although London ranked as the go-to investment destination by the world's wealthy, Dubai came in a close second, up from seventh place a year earlier.

Renewed demand from domestic and overseas buyers seeking Dubai property assets is a sign of increasing interest in Dubai's improving real estate market.

"This leap up the league table underscores the impact of the economic rebound on Dubai's appeal as an investment hot spot. We're now seeing the results of the survey materialise in the form of high profile deals, which we expect to gather momentum," Durrani said.

Earlier in October, the US National Association of Realtors published a report which stated that buyers from India purchased residential properties in the US estimated at $5.8 billion in value during the one-year period ending March 2014. This investment magnitude represented an approximate growth of 6 per cent over 2013. It went on to state that Indians spent $4,59,028 (Rs 2.81 crore) on an average to buy properties across cities like Los Angeles, Las Vegas, Chicago, Dallas and New York.

This is definitely an interesting finding. Indian HNIs who have obtained American citizenship and are settled there have several reasons for investing in properties in the US. Apart from India’s long-standing love affair with America and all things American, many Indians who have become naturalised US citizens have business interests as well as families in major American cities.

Also, investment into the US property market is once again very favourable. After the steep post-Lehman downturn, countless investors had been able to snap up properties in American cities at unbelievably low prices, and these investments are seeing handsome returns now that the US real estate market is reviving.

As for resident Indians, the Reserve Bank of India had earlier drastically curtailed the flight of Indian money by capping outward remittances and rendering investment into foreign properties impossible. It is only recently that the annual investment ceiling for individuals to buy overseas property under the Liberalized Remittances Scheme was increased from $75,000 to $1,25,000.

This enhanced investment limit is a small but important window. For example, a married couple can now together buy a small property in a US suburb if they have the inclination to do so. Previously, real estate as an option was entirely withdrawn from the LRS scheme and the limit purview.

The annual limit of $1,25,000 —equivalent to Rs 75 lakh — broadly means that if a Indian resident wants to buy a house in the US worth $4,60,000 (the average ticket size of apartments bought by Indians in the US as per the NAR report), he can do so in three or four instalments with a gap of one year between every two instalments.

Since quite a few apartments in the US are currently held by institutional investors who had bought them during crisis from distressed sellers, it is easy for a foreign buyer to make such deals with such institutions rather than with individual US house owners. The NAR report also mentions that of the total worth of apartments bought by Indians, close to 23 per cent had a component of cash, which could either be held by Indians in their US bank accounts. This is particularly applicable to businessmen and exporters.

Therefore, it is not necessary for these Indian buyers to bypass the RBI limit on asset purchases for big deals abroad.

The Foreign Exchange Management Act (FEMA), 1999 specifies that a person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.

Further, in order to liberalize the foreign exchange facilities available to resident individuals, RBI has started a Liberalized Remittance Scheme that allows a resident Indian to remit up to US$ 125,000 in one financial year for any permitted capital and current account transactions, including acquisition of immovable property, shares, debt instruments or any other assets outside India as permitted under the scheme.

Liberalized Remittance Scheme (LRE)

The Liberalized Remittance Scheme (LRE) permits all resident Indians, including minors, to make remittance for an amount not exceeding USD 125,000 per financial year for any Current or Capital Account transaction or a combination of both. Remittance under this scheme is on a gross basis.

LRE Guidelines

Under the Scheme, resident individuals can acquire and hold immovable property or shares or debt instruments or any other assets outside India, without prior approval of the Reserve Bank of India. Individuals can also open, maintain and hold foreign currency accounts with Banks outside India.

The investor can retain and reinvest the income earned on investments made under the Scheme. Currently, the residents are not required to repatriate the funds or income generated out of investments made under the Scheme.

Remittances under the facility can be consolidated in respect of family members subject to the individual family members complying with the terms and conditions of the Scheme.

The facility under the Scheme is in addition to those already available for private travel, business travel, studies, medical treatment, etc as described in Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000. The Scheme can be also be used for these purposes.

Gift and donation remittances cannot be made separately and have to be made under the Scheme only. Accordingly, resident individuals can remit gifts and donations up to USD 100,000 per financial year under the Scheme. Any money transferred to another country is taxable except money transferred as gift on the occasion of marriage of an individual, irrespective of any limit (but within reasonable amounts) as specified by the taxation laws.

Remittances under the Scheme can be used for purchasing objects of art subject to the provisions of other applicable laws such as the extant Foreign Trade Policy of the Government of India.

The Scheme can also be used for remittance of funds for acquisition of ESOPs. The remittance under the Scheme is in addition to acquisition of ESOPs linked to ADR/GDR

The remittance under the Scheme is in addition to acquisition of qualification shares. (i.e USD 20,000/- as 1% of paid up capital of overseas company whichever is lower).

A resident individual can invest in units of Mutual Funds, Venture Funds, unrated debt securities, promissory notes, etc under this Scheme. Further, the resident can invest in such securities out of the Bank account opened abroad under the Scheme.

An individual, who has availed of a loan abroad while a non-resident can repay the same on return to India, under this Scheme as a resident

It is mandatory for resident individuals to have PAN number for sending outward remittances under the Scheme.

In case a resident individual requests for an outward remittance by way of issuance of a demand draft (either in his own name or in the name of the beneficiary with whom he intends putting through the permissible transactions) at the time of his private visit abroad, such an outward remittance can be effected against self declaration of the remitter in the format prescribed under the Scheme.

List of transactions NOT permitted under the scheme

Remittance from India for margins or margin calls to overseas exchanges/ overseas counterparty.

Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery/sweep stakes, tickets proscribed magazines etc) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.

Remittances made directly or indirectly to Bhutan, Nepal, Mauritius or Pakistan.

Remittances made directly or indirectly to countries identified by the Financial Action Task Force (FATF) as "non co-operative countries and territories" from time to time.

Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank of India to the Banks.

Property purchase procedures, rules and regulations vary across nations, more so for the non-residents/foreigners. For example, in Australia, the types of property foreigners can purchase are restricted. Similarly, in the US, non-US citizens can purchase property, depending on their immigration status. In all the cases, credit history along with the employment and citizenship details of an individual; acquiring property abroad will be checked.

One should also be aware of the property acquisition process as well as the local regulations before investing in real estate abroad. There are multiple modes of financing property acquisition abroad. Some of these include:

Own sources: The buyer may fund the purchase from funds in India under the Reserve Bank of India's Liberalized Remittance scheme.

Overseas mortgage with an international mortgage provider: A feasible option is to claim mortgage from a bank in the chosen destination. The foreign banks with branches all over the world offer several overseas mortgage plans based on the value of the property to encourage foreign investors to buy property abroad. Typically, the loan amount offered is 75-80% of the property value and the tenure for overseas loans ranges from 5 to 30 years. The rate of interest offered may be fixed or variable, and varies across countries and lenders. For example, rate of interest is relatively higher in European countries.

Local financing from a developer: Many developers offer their own in-house financing. For example, in Dubai this is prevalent.

Certain Countries are quite liberal and their Embassies / High Commissions easily provide requisite information for availing housing loans. Although mortgages are available on all types of properties, the lending may vary for each property type. For example, in some countries like Turkey, mortgage is available only on completion of the project/property, while in some cases, the amount is lent subsequently as the project develops. So, if individuals need to avail housing finance abroad, then they should be familiar with the loan procedures and guidelines applicable in the country.

Tips for Buying Property Abroad

Here are a few practical tips to help you buy property in another country:

Know the purpose of buying: It is important to realize the purpose of buying a property abroad. If you are buying a property for gaining visa or citizenship, then you need to think twice because every country follows different regulations regarding property ownership. For example, in Hong Kong, owning a property by a foreigner helps in securing visa, but in New Zealand, the UK, and Australia, possessing an immovable property confers no advantage towards a residency permit. However, if you work abroad or have children studying abroad or are a frequent visitor to a destination abroad, then buying property abroad is surely a viable option.

Do you homework: Before you initiate the buying process, ensure that you find out all about the country you are considering for property purchase, including climate, cost, connectivity, economy, etc. Also, make a visit to the country and get in touch with a local estate agent to understand the dynamics of the property market in the area and to educate oneself on available properties and locations.

Know the tax liability: Another aspect that one needs to consider is the tax liability associated with owning a real estate, including taxes payable while purchasing, holding, renting, and selling property – both in the country where you are investing and also in India. Check the inheritance and capital gains tax laws of the country where you are buying immovable property. Tax implications vary across countries and according to the type of property bought; so ensure you are aware of these to avoid any surprises later. Identifying the need to avoid double taxation, that is, paying taxes in India as well as in their country of residence, the Government of India has entered into Double Taxation Avoidance Agreement (DTAA) with 65 countries including the U.S.A., the U.K., Japan, France and Germany. In case of countries with which India has Double Taxation Avoidance Agreements, the tax rates, are determined by such agreements.

Verify the credentials of your real estate agent: Ensure that the real estate from whom you are buying property is well reputed and registered under the respective laws of the concerned state. The agent should be proficient in your chosen country's laws and processes and know the specifics involved in buying a property there. Ask your property agent for all the necessary documents including building regulations and planning permissions.

Verify the title to the property: Engage a qualified lawyer to inspect and confirm the validity of the title deed and related documents, and ensure there are no encumbrances on the property.

Contract: Never sign a contract that you do not understand, especially if it is in a foreign language. Get the contract translated into native language and understand the nuances with the help of a qualified lawyer. The legal expert can also guide you about the property laws prevalent in the country. If two versions of a contract are provided, i.e., English and local language, ask your solicitor to confirm that the English version is a true translation. The contract involved in buying a property should be tripartite agreement including Indian buyer, foreign seller/real Estate Company, and Indian representative, which should be a registered company under Indian laws (and not an individual). Many foreign real estate companies have opened up franchises in India that act as Indian representative in a property deal abroad. As these representatives are more aware of the property market in their respective countries, they can guide the Indian buyers accordingly, and in case of legal disputes, they can be held accountable.

Get the money matters right: Arrange for sufficient funds to include property value as well as maintenance costs including travel, repair, and renovation costs. If you are arranging finance on the property, ensure that this is stated in any contract and, where possible, seek an 'opt-out' clause if the loan is not disbursed (which will ensure any deposit paid is refunded). When claiming mortgage, cover all hidden costs, as it would be difficult to claim more when initial paperwork has been completed by the Bank. Also, remember that your mortgage will probably be in local currency, and you must consider the impact of fluctuations in exchange rates.

Open a local account: Open a Bank account in your chosen country and, where relevant, ensure you obtain a Certificate of Importation for the money you bring in from your home country. Set up standing orders in your local Bank account to meet local bills and taxes.

Study Property Price Indices: A careful study of property price indices of a country or area where you wish to acquire property is also recommended. This will ensure your awareness and clarification of trends for commercial as well as residential property.

The real estate market in many countries offer very lucrative investment prospects with various offers and options. Apart from that, Indians buying property abroad can often avail of citizenship in the host country. This factor is of considerable aspirational value to many. The aspiration factor aside, property in more and more locations within Indian metros has become enormously expensive. Moreover, interest rates for bank loans are already proving to be a stumbling block and may rise further with the future revision of the RBI norms.

In comparison, an Indian wishing to buy a property in New York, London or Singapore, can avail considerably lower interest rates of local banks in those countries. Also, many foreign property markets are more transparent than ours; so investors can get 'clean' deals much faster and easier. Investment in property abroad makes sense for those who are employed or have business interests in the country of choice. Indians who have settled or are planning to settle abroad permanently, are of course, prime candidates.

WHO IS BUYING AND WHERE?

The broad profile of Indians who are looking to buy properties abroad would include business owners, professional property investors, mid-to-top level company management and high net worth individuals. A large component of buyers comprise people whose children study in those countries.

Singapore, Malaysia, New York, Dubai and various cities in the UK - predominantly London, are the preferred destinations for Indian property buyers. Due to the current ceiling on how much an Indian can invest abroad in one financial year, central city locations are out of reach for many aspiring Indians. This makes peripheral locations more attractive to such buyers. The US or the UK, are closest to the hearts of most Indians hoping to buy property abroad. However, when these are out of reach, Dubai is among the most preferred property investment destinations for Indians.

The current limit for Indians investing abroad continues to be $2,00,000 per annum. This ceiling is not for investment in real estate alone but applies to any kind of investment in a foreign country. The limit applies to individual buyers, so the investable amount doubles in the case of couples. The Indian government may consider relaxing the ceiling further if it perceives an increased interest by Indians in foreign property investment. Indians have the option of entering into joint ventures with local operators in foreign countries such as Mauritius, Bhutan and Sri Lanka. The UAE also offers such a facility in some quarters.

Entering into a JV with a foreign entity on its home turf can lead to vastly increased investment scope (beyond the $2,00,000 ceiling prescribed by the RBI) and generate higher profitability.

PRECAUTIONS FOR INVESTING IN PROPERTY ABROAD

Indians buying property in a foreign country should remember that there are investment and liability risks they may be exposed to. In some countries, land laws for investment in immovable properties can lack transparency and be quite complicated. It is unadvisable to invest in any project announced by a company or seller that has no physical representation on Indian soil. Secondly, one must keep in mind that most foreign property markets have their individual regulatory and permission mechanisms. While the RBI does permit investment of upto $2,00,000 per annum, one must establish whether one is eligible to invest in the country of choice to begin with.

Many Indians buying properties overseas are faced with a dilemma.

The government has increased the amount of money that Indians can remit overseas, prompting them to buy properties overseas in the past few months.

But at the same time, the government has scraped text exemption on capital gains reinvested in overseas properties.

Under the Liberalised Remittance Scheme (LRS) introduced last year, the Reserve Bank of India allowed all resident individuals to remit $250,000 overseas every financial year for purchase of property or shares, overseas education, travel, medical treatment, apart from maintenance of relatives living abroad, gifting and donations. Earlier, this remittance limit had been $125,000.

Due to the increase remittance ceiling, many Indian buyers are finding it easier to invest money in properties overseas, particularly in countries like the USA and Dubai. The new limit has brought some types of properties, for example a one-bedroom apartment in Dubai, within the reach of more buyers.

However the government has scrapped the capital gain tax exemption, if the gains earned from selling a property in India are reinvested in an overseas property.

Sections 54 and 54F of the Income Tax Act earlier provided that, where capital gains arose from the transfer of a residential house held for three years or more, and the tax payer reinvested the capital gains in a new residential house within a certain period, the capital gains to the extent re-invested would be exempt. The act did not stipulate that the new property should not be abroad.

However the Income Tax Act was amended in the 2014 Finance Act, effective from April 1, 2014, and removed the capital gains tax exemption, where the gains are reinvested in overseas property.

"With the RBI now doubling the remittance figure, and overseas property proving to be attractive, investors are hoping for a tax break. The forthcoming Budget should consider this issue and re-introduce tax breaks on reinvestment in a house property overseas," said Naushad Panjwani, senior executive director, Knight Frank India.

Are you planning to buy a second home? If a heritage home in Goa, which can be worth crores of rupees, is too expensive for you, how about an old villa or cottage with a sprawling garden in a serene village in France, Italy or Spain? Yes, a residential property in these countries can be cheaper than premium apartments in places such as Delhi and Mumbai.

Economic troubles in the US and Europe have led to a sharp fall in property prices there.

"Banks have ended up owning a large number of foreclosed, non-performing assets (especially in the US). These are bad for their books, resulting in a situation where they are offering foreclosed assets at very low prices just to liquidate their non-performing assets," says Ajit Krishnan, partner and leader, real estate and infrastructure, Ernst & Young India.

Economic turmoil is not the only reason property investors are exploring overseas locations.

"Some international places offer themselves as sound investment destinations, irrespective of the overall economic situation. They are reasonably liquid and not volatile," says Anand Narayanan, national director, residential agency, Knight Frank India.

POPULAR DESTINATIONS

Buying properties abroad is not unusual for non-resident Indians. However, many high net worth Indians who travel overseas frequently are now becoming attracted by the potential for price appreciation in other countries.

"Dubai, London, New York and Singapore are the most popular property destinations for Indians. Except Dubai, the other three have given attractive inflation-adjusted returns in the last two years, as well as over a longer time horizon. Exotic resort locations in Thailand, Florida, Mauritius and south of France, too, are in demand along with education destinations such as Sydney and Melbourne. In the eyes of the discerning Indian buyer, they offer better value for money compared with properties in India," says Narayanan.

"It is the holiday home segment which is picking up strong momentum. After the price crash, Spain, Greece and Italy have become attractive for buying a holiday home," says Krishnan.

While Europe has some good options, London is the popular choice of those who can afford it. Though prime location properties there can be very expensive, independent houses in several locations are available for around $300,000, or around Rs 1.5 crore (this is the price of a three-bedroom villa listed on the website of a leading London property brokerage).

In Asia, Singapore and Thailand are attracting Indians due to easy access. Singapore allows foreigners to buy property but with restrictions. If a foreigner wants to own a property with land, he needs clearance from the government. No special approval is needed to buy apartments and condominiums. However, properties there can be as expensive as in Indian metro cities. So, if you are searching for a bargain, you may have to look somewhere else.

You can also explore Thailand, known for tourism and beaches. Property developers there are offering three-bedroom independent houses in Pattaya, a seaside resort city, for around 40 lakh Thai Baht or Rs 68 lakh.

In Bangkok, three-bedroom villas are available for 50 lakh Thai Baht or around Rs 85 lakh (listed on CB Thailand website).

Like Singapore, Thailand does not allow foreigners to own land. A foreign national can own land on lease with a maximum tenure of 30 years that can be extended twice for the same duration. This means if you want to own a villa in Thailand, the land can be yours for just 90 years. The rules are different for foreign companies incorporated in Thailand.

Dubai is another popular destination among Indians. "In West Asia, Dubai is preferred due to accessibility. Distance is a deterrent in case of the US. However, the US is preferred by Indians who have spent some time studying and working there," says Krishnan. Though there is the advantage of proximity to India, properties in Dubai are expensive. A two-bedroom apartment there can cost $400,000 or Rs 2 crore.

If you want to spend your time in idyllic villages, you can find rustic cottages and stone houses in places in France, Italy and Greece. If you want to enjoy the beauty of the Alps, you can explore Switzerland. Prices there can be high but are worth paying for the joy of owning a house overlooking the snow-covered Alps. You can find new or resale chalets (wooden houses or cottages) in Switzerland for $800,000 and above.

If Rs 4 crore for a chalet sounds outrageously expensive, you can take comfort from the fact that they can be rented out for Rs 50,000 per week or more (rental of a two-bedroom self-catered chalet) during the skiing season.

In contrast to Switzerland, you can find cheaper properties in various parts of the US. A quick property hunt can lead you to villas that cost as low as $15,000.

For instance, a three-bedroom villa in Michigan, Detroit, is quoting for $28,000, around Rs 14 lakh. Compare it with the price of a two-bedroom apartment (around Rs 15 lakh for small apartments) in the upcoming areas of the National Capital Region.

Homes in places such as New York are very expensive, though. A studio apartment in Manhattan can cost as much as $150,000 or around Rs 75 lakh.

LEGAL DILIGENCE

Buying a property in foreign countries requires more effort and caution. One has to be mindful of foreign investment laws of India as well as the destination country.

"An Indian can buy a house overseas under the liberalised remittance scheme by making a remittance of up $200,000 per financial year. The Foreign Exchange Management Act also allows an Indian resident to acquire a property outside India by way of gift or inheritance from a person resident outside India," says Krishnan. "In addition, a person resident in India may hold an immovable property outside India acquired when he was not a resident in India (when he may have been working outside India)," he adds.

"The most important aspect is to look for integrated service providers who offer services both in India and the place where the property you want to buy is located," says Narayanan.

"An international property consultant who offers you the property should also have the capability to give legal structuring advice through specialised partners to ensure you fund the purchase without flouting any Indian law or inheritance laws of the country where the property is located," he adds.

You must also check inheritance and succession rules of the country where you intend to buy the property. You also need to consider taxation and the cost of maintaining the property.

"The tax implications will be determined by the citizenship status and the duration of stay in the foreign country. For instance, take an Indian who buys a property in the US for giving it on rent and restricts the time spent in the US to a cumulative of 30-40 days per year. In such a case, he will quality as a 'resident and ordinarily resident' in India. In such a situation, any income arising from the US property (whether notional or actual) will be taxable in India. This property shall be taxable in the US as well," says Krishnan.

"In such a case, the property owner will have to avail of the India-US Double Taxation Avoidance Agreement. If the owner has a property in India too, one of his property shall be liable for wealth tax as well," Krishnan adds.

Buying properties overseas has its own challenges, more so if the cost of the property that you want to buy is over the annual overseas remittance limit allowed by the Reserve Bank of India.

"The Indian central bank has capped the overseas property investment at $200,000 per person per year. This is a deterrent for overseas investments, as most properties cost more than this," says Krishnan.

Before you get excited about the opportunities that the overseas real estate market offers, keep in mind that several countries require foreign buyers to pay large property transaction fees or taxes.

Singapore, for instance, recently tightened the residential property market for foreigners by requiring them to pay an extra 10% stamp duty on purchases. Consider all the factors to arrive at the actual cost of ownership. If the numbers and prospects of the foreign property market look good, go ahead and seal the deal.

TIPS FOR BUYING PROPERTY OFFSHORE

Visit the place a few times, both when it looks the best and during the off-season.

Don't go by the quoted price; bargain hard, especially if it is a new property.

Get a list of all fees and charges associated with a property transaction.

Hire an international property brokerage firm that is present in your home country as well as where you want to buy the property.

Consult an independent advisor who can guide you through the legal aspects of property ownership in the destination country and ensure a smooth transaction.

Try to time your property purchase when the foreign currency exchange rates are in your favour.

Check whether you will be eligible to visit your foreign home as frequently as you want (visa, residential status, etc)

Explorers such as Pytheas from 4th century BC Greece and Ibn Battuta from 14th century Morocco spent years on ships or with caravans during their travel to other countries. Now, as faster travel brings people closer, those looking to make good money do not limit their investments to one country. Indians are no exception. As economies the world over try to revive their real estate industries, they are offering incentives to buyers from other countries. That's why it may be the right time to invest in properties abroad, say experts.

BEYOND BORDERS

"As land, property and construction sectors become interwoven as a consequence of globalisation of business and financial sectors, overseas property investments are becoming more convenient and lucrative, with relatively low risk," says Sachin Sandhir, managing director, RICS (Royal Institution of Chartered Surveyors) India, an organisation for qualifications and standards in real estate.

Buyers' preferences depend on factors such as economic stability, cost of ownership and taxes.

"Singapore, Malaysia, New York, Dubai and some cities in the UK, predominantly London, have been preferred by Indian buyers for years," says Anuj Puri, chairman and country head, Jones Lang LaSalle India, a property advisory.

"The investors are successful businessmen, entrepreneurs and those whose children are studying abroad. Sometimes, the attraction is the high returns these properties can provide," says Mona Jalota, chief associate, international project marketing, Knight Frank India, a property consultancy.

The choice of location depends on buyers' objectives. For investment , Malaysia, Sri Lanka, Singapore, Switzerland, Mauritius and Dubai are popular. Those looking for a place to live prefer a country with family members and business interests. In this, the UK and the US are the preferred destinations. Some go for holiday homes.

"In the holiday-home segment, which is picking up momentum after a crash, Switzerland, Spain, Greece and Italy have become attractive destinations," says Shveta Jain, executive director, residential services, Cushman and Wakefield India, another real estate advisory firm.

REALTY CHECK

While doing a property deal abroad, study the rules that will govern the transaction . Resident Indians are allowed to remit up to $200,000 (Rs 1.1 crore) out of the country per financial year from their own funds.

Many countries restrict foreign ownership of real estate. Singapore, for instance, allows foreigners to buy apartments/condominiums, but purchase of land requires government clearance. Thailand allows foreigners to hold land only on lease.

"One must consider foreign investment laws of India as well as the destination country. One must also check inheritance/succession as well as tax laws," says Jain.

If you rent out the property, the income can be taxed in the foreign country as well as where you live. India has tax treaties with a lot of countries and so you will have to look at the tax angle on the basis of the property's location.

Some countries such as Dubai, Singapore, Mauritius and Cyprus do not tax capital gains. Even if the capital gain is exempt where it is made, you will have to pay capital gains tax in India. You will also have to declare the property in tax returns and pay a wealth tax at 1 per cent of its value in excess of Rs 30 lakh if it is not let out.

RESIDENCY RULES

Residency and visa rules are also important. While these usually limit the options, many countries trying to revive their economies are trying to attract foreigners to their property markets. Several countries give residency to the buyer if the value of the property is more than a threshold. These include Cyprus, Hungary, Portugal, Ireland, Malaysia, Bahamas and the UAE.

In October 2012, the Portuguese government passed a law to offer 'Golden Passport' to attract investments. Under this, the country will give you resident status if you buy a property worth Euro 500,000 (Rs 3.65 crore) or more there. Ireland is offering residency to foreigners who buy properties worth Euro 400,000 (Rs 3 crore) or more. Spain plans to launch a scheme under which buying a home for Euro 160,000 (Rs 1.2 crore) will make a person eligible for permanent residency.

"Cyprus, the gateway to Europe, offers residency permit on a minimum investment of Euro 300,000 (Rs 2.2 crore). In Oman, an investment of $200,000 or more gets the investor a residency permit that gives him access to all the Gulf Cooperation Council countries," says Jalota.

POPULAR OPTIONS

You can buy a house abroad at the cost of a luxury apartment in Indian metro cities. "Indian residents can buy property under the Liberalised Remittance Scheme within the overall limit of $200,000 per individual in a financial year. Accordingly, a family of four should be able to remit up to $800,000 for such a transaction," says Sandhir.

You can buy a property for more if the payment is made over several years. "The properties can range from a studio apartment to a 2BHK flat, as these are the easiest to rent," says Jalota of Knight Frank.

Though the price of a lot of properties is within the remittance limit, buying a prime property is still a tough task. "Because of the ceiling on how much an Indian can invest abroad in a financial year, central city locations are out of reach for a number of buyers," says Puri of JLL.

Here are some investment options in foreign locations -

London:

Knight Frank's data show that among foreign buyers, between April 2009 and June 2012, 3.6 per cent residential property purchases worth »1 million or above were made by Indians, next only to Russians (4.3 per cent). Studio apartments and 1BHK properties in London start from Rs 50 lakh, but a 2BHK can cost Rs 2-3 crore in good locations.

"London is popular due to several reasons; secure property tenure, safety, lifestyle, culture and education," says Jalota. "There are two main groups of buyers: those looking to buy studio apartments for children studying there and big investors looking at the central London market," she adds.

Singapore:

Singapore is a trading and education hub and a popular holiday destination. It has seen a lot of buying of late, prompting the government to levy duties to curb prices. Now, foreigners and companies buying residential real estate will have to pay an additional stamp duty of 15 per cent of the purchase price; this was 10 per cent earlier.

"Despite Singapore not offering residency to foreign buyers, bankers and industrialists have invested in the city whose climate is similar to India's but infrastructure and quality of life are worlds apart," says Jalota.

Spain:

Spain has been hit by the euro zone debt crisis, which also ails Belgium, Cyprus, Greece, Hungary, Iceland, Ireland, Latvia, Portugal, Russia and Ukraine.

Due to the fall in the euro's value, foreign buyers now have to pay less to buy a property in Spain, making it an attractive destination for holiday homes. The residency initiative is an additional motivation. However, property prices are expected to fall further.

"Banks in Spain have taken steps to bring down prices, something that Ireland started doing four years ago. The residential market in Spain is enormous and will soon start getting very competitive. Also, the country is taking measures to boost tourism," says Puri of JLL.

Prime markets in Spain are Madrid, Barcelona, Balearic Islands, Algarve, Marbella and Sotogrande. You can find good properties for as less as Rs 50 lakh.

Dubai:

Closer home, Dubai was a popular destination for Indians looking for better-paying jobs before the 2008 global financial crisis. The prime residential market there is supposed to have bottomed out.

"The recovery in prices is most pronounced in the villa sector (25 per cent jump in the past one year) compared to the apartment sector (4 per cent rise). Rents have also started to recover, with a 7 per cent rise for villas and 5 per cent for apartments year-on-year," according to a JLL report. However, the revival is limited to prime locations.

Knight Frank has forecast that Dubai's villa properties will be one of the strongest performers in 2013, alongside Moscow and Miami. Limited supply of luxury homes would push up villa prices in Dubai by 5-10 per cent in 2013, it said in a report. Villa prices in the city recorded a jump of 20-30 per cent annually at the end of September 2012.

Buying that dream home in an exotic location abroad just got easier as the Reserve Bank of India (RBI) on Tuesday doubled the annual overseas investment ceiling for individuals to $2,50,000 from $1,25,000 as India's foreign exchange reserves have scaled an all-time high.

"On a review of the external sector outlook and as a further exercise in macro-prudential management, it has been decided to enhance the limit under the Liberalised Remittance Scheme (LRS) to $2,50,000 per person per year," the RBI said in its Bi-Monthly Monetary Policy Statement. However, RBI clarified that all current account transactions like medical treatment, purchase of journals, and repayment of student loans and credit card dues would be included under the $250,000 cap.

LRS allows Indian citizens to acquire and hold shares, debt instruments or other assets such as real estate overseas without the RBI's approval. So what this essentially means is that a family of four can now remit as much as $1 million every year to purchase assets overseas.

Indians are increasingly acquiring properties across the globe but the leading destinations for offshore properties remain London, New York, Singapore and Dubai. Exotic holiday destinations such as Thailand, Malaysia, Southern France, Florida and Mauritius are also gaining rapid popularity among those looking to invest abroad in real estate.

In fact, according to a Dubai Land Department(DLD) report in January 2015, investments in Dubai's realty market by Indians have surpassed those from other countries to AED 18.12 billion (Rs 3,035 crore) in the year gone by. Data from National Association of Realtors showed that Indians represented 6 percent of US home buyers in 2014, spending $5.8 billion, on par with buyers from Britain. Buyers from five countries account for over half of international home sales in the US, with Indian buyers ranked third.

For affluent Indians, American real estate is a security blanket in the face of a bubble in real estate prices in major Indian cities. According to Anuj Puri of Jones Lang Lassalle an Indian wishing to buy a property in New York, London or Singapore can avail considerably lower interest rates of local banks in those countries. Also, many foreign property markets are more transparent than ours; so investors can get 'clean' deals much faster and easier. Investment in property abroad makes sense for those who are employed or have business interests in the country of choice. Indians who have settled or are planning to settle abroad permanently, are of course, prime candidates.

"An allocation by Indian investors to global developed markets, such as, US, UK, Europe and Japan is very critical since a balanced investment portfolio should have exposure to developed economies and capital markets, hard currencies, such as, Dollar, Pound, Euro and Yen," said Dr Vikas Gupta, EVP, Arthveda Fund Management.

In view of the worsening current account deficit and a volatile rupee, the RBI had in August 2013 reduced the ceiling from $200,000 to $75,000 per person in a year under the LRS. What's worse is at the time it had even banned the purchase of property abroad. The press release at the time said: "While current restrictions on the use of LRS for prohibited transactions, such as margin trading and lottery would continue, use of LRS for acquisition of immovable property outside India directly or indirectly will, henceforth, not be allowed."

Consequently, with improvement in forex situation, it was raised to $125,000 in June 2014. In mid-January, the foreign exchange reserves touched a new life-time high at $322.135 billion driven by higher foreign fund inflow and lower forex outgo as global crude oil prices came down sharply.

Question: What’s the worst kept secret in Mumbai’s real estate industry? Answer: Over two-thirds of the projects are delayed by at least six months. That has left behind irate buyers and developers struggling to find a way to pay for the increased cost of construction.

In city after city in India, this story plays itself out. Developers overcharge for projects, their construction quality is at best shoddy and they rarely deliver on time.

In the past, there was very little buyers could do. Projects often got sold out within days of being launched and developers knew they could get away with delays.

But a rise in income levels, coupled with increasing awareness about avenues for buying property overseas, has resulted in an increasing number of Indians buying a house outside the country. They’re buying everything from studio apartments and weekend homes to villas and chalets.

While traditional hotspots like London, Singapore and Dubai usually top the list, the more adventurous have bought space in beachfront developments in Muscat, Oman, and ranch-style houses outside Nairobi, Kenya.

In 2004, the Reserve Bank allowed Indians to invest abroad with an initial limit of $50,000, later raised to $200,000. In 2005, the first full year for which data is available, Indians invested $1.9 million in real estate overseas. Last year, the number had increased to $62.2 million.

Add to this outflows from companies that invest in real estate overseas. Diamond traders from Mumbai have bought houses in Macau, another diamond hub, for their personal use when they travel there on business. Another investment avenue is available through the corporate route. Companies with business subsidiaries abroad can invest in property that is then used for their business.

To be sure, the number of buyers investing overseas is still small, but large property consultants such as Jones Lang LaSalle, Cushman & Wakefield, CB Richard Ellis and Knight Frank say they receive at least a dozen enquiries a week asking for information on investing in property abroad. Knight Frank has set up a dedicated group headed by Mona Jalota to tap this business opportunity.

These buyers are not first timers feeling their way around the property market. They’re smart, well-travelled and have already done a great deal of research on the internet. Aged between 30 and 50, they’re on average making their third property investment. They already own the house they live in and a holiday home is a short drive from where they live. They’re either successful businessmen or entrepreneurs who run their own companies. And now they’re looking for a foreign address.

Sure, it’s as much for the ease and convenience of owning property abroad as it’s for the returns. Oh and don’t forget the snob value!

For a young IT professional in Bangalore, investing in a house in Singapore was as much about his business need as it was about taking his family there for short breaks. He’d just sold his company and needed some place to park the surplus cash.

At the same time, while working on the idea for this next venture, he travelled to Singapore 10-12 times a year. After a few visits, he decided this was an ideal place for short breaks for his wife and children and he ended up buying a two-room house in Singapore.

Or take the case of a middle-aged professional who invested in London, as her children went to college there. According to her, the London property market is one that is very organised. She could do most of the initial research over the internet. Data is easily available and government sites will tell you how much the last house in a particular apartment block sold for. Thereafter, one has to get in touch with any of the large property brokers, such as Foxtons and Winkworth, who charge sellers a flat 2 percent fee.

The first steps

Perhaps the first question a would-be buyer needs to answer is: How am I going to fund my purchase? In the case of property in India, the answer is twofold: Personal savings or a loan.

When investing abroad, the loan option goes out of the window. Banks in India do not lend for property abroad. Likewise, banks abroad do not lend for property in their country unless one is a citizen or has assets there. So, a bank in the UK will only lend for property in London if the buyer has assets in that country. This means that the vast majority of foreign real estate transactions take place through personal savings, says Pranay Vakil, former chairman of Knight Frank India.

But don’t bother saving too much for that dream house abroad, as Indians are allowed to invest a maximum of $200,000 a year abroad. That means a husband and wife can invest $400,000 abroad, but buying million-dollar properties in central London or penthouses in Singapore and Dubai remain out of reach.

It’s here that a good property agent can help. For instance, you can invest in your children’s name to increase the limit. Or two brothers can partner and buy a house together.

Indians spent an average of $459,028 (Rs.2.81 crore) to buy properties across cities like Los Angeles, Las Vegas, Chicago, Dallas and New York.

Indians bought residential properties in the U.S. estimated at $5.8 billion in value terms for the year ending March 31, 2014.

A report by the U.S. National Association of Realtors (NRA), released in October, said the investment magnitude represented a growth of about 6 per cent over the previous year.

The report further said that Indians spent an average of $459,028 (Rs.2.81 crore) to buy properties across cities like Los Angeles, Las Vegas, Chicago, Dallas and New York.

“This is definitely an interesting finding. Indian high net worth individuals (HNIs), who have obtained American citizenship and are settled there, have several reasons for investing in properties in the U.S.,’’ Anuj Puri, Chairman & Country Head, JLL India, a leading real estate consultancy said. “Many Indians who have become naturalised U.S. citizens have business interests as well as families in major American cities.’’

Investment in the U.S. property market is once again favourable. After the steep post-Lehman downturn, countless investors had been able to snap up properties in American cities at unbelievably low prices, and these investments are seeing handsome returns now that the U.S. real estate market is reviving.

For resident Indians, the Reserve Bank of India (RBI) had earlier curtailed flight of Indian money by capping remittances and rendering investment into foreign properties impossible. “It was only recently that the annual investment ceiling for individuals to buy overseas property under the Liberalised Remittances Scheme (LRS) was increased from $75,000 to $125,000. It had been at $200,000 before being reduced to $75,000 and subsequently being hiked to $125,000. Buyers need to be allowed to commit more,’’ Mr. Puri told this correspondent.

The annual limit of $125,000, equivalent to Rs.75 lakh, broadly means that if an Indian resident wants to buy a house in the U.S. worth $ 460,000 (the average ticket size of apartments bought by Indians in the U.S. as per the NAR report), he can do so in three or four instalments with a gap of one year between every two instalments,’’ Mr. Puri said.

“There is no doubt a lot of interest in the Indian community to buy property in the U.S. but the RBI restrictions are not conducive to larger investments. There is a hope that the limit may be increased from the current levels in future,’’ he said.

If owning a home in India is a struggle, buying one abroad is a dream for most Indians. But for some, the dream has come true, as they buy property in places such as Dubai, Sri Lanka, and the United Kingdom (UK).

What started as a trickle in 2005 has turned into a flood now. In the last eight years, investments by Indians in overseas properties have grown a whopping 40 times from a mere $1.9 million in 2005 to $77.7 million in 2012. RBI data show that this March, $16.6 million was remitted for property purchases, double the $8.1 million transferred in the same month last year.

A growing number of Indian businessmen and professionals has been investing in property outside India in recent years thanks to the Liberalised Remittance Scheme (LRS) that allows resident Indians to send funds abroad. The Government increased the amount that can be transferred from $25,000 in 2004 to $200,000 in 2007, in three stages.

A key draw is the decline of the property market after the 2008 crash. In contrast, there has been no let up in the rising prices of realty in India. Little wonder then that Indians were among the top property buyers in Dubai in 2012, when the market showed early signs of a pick-up.

PRICE GAIN, GOOD RENTS

“More than ever before we see wealthy Indians looking to buy a second home outside the country,” says P. N. C. Menon, Chairman of Dubai-based Sobha Group. He says Indians were the main customers for Sobha’s premium villa projects in Dubai.

Currently, homes in Detroit (US) or Colombo are available at bargain prices. With the economies of these countries showing signs of revival, investors are heading to these markets for their perceived value.

The depreciation of the rupee has not reduced the affordability of these homes. “Prime beachside property in Colombo sold for around Rs. 8,000 a square foot 18 months ago, (making it) more affordable than properties in Chennai,” says Om Ahuja, CEO of Residential Services at Jones Lang LaSalle India.

Indeed, investors can get amplified returns if the rupee continues to depreciate.

Most overseas markets also offer higher rental incomes compared to the average of 2 per cent in India now. In the UK, Dubai and Singapore, rental yields are over 5 per cent, adding to the investor’s cash flow.

OTHER BENEFITS

A liquid market and transparent transactions are the icing on the cake. Dubai, Singapore, Mauritius and Cyprus do not charge capital gains tax on property sales. Cyprus, Portugal, Ireland, Malaysia and Bahamas offer work and extended stay visa to attract investments.

Some High Net-worth Individuals, who travel frequently to a country for business or pleasure, are choosing to buy a property there for personal use instead of staying in hotels.

There is also the trend of parents buying an apartment in university towns in the US or the UK, first for their children and then to earn rental incomes after they graduate.

According to Jones Lang LaSalle’s Ahuja, professionals have increasingly been buying property in London over the last two years.

Owning property abroad has its own benefits, but keep in mind the location, time of the investment and frequency of your visit there

If you are looking to invest in property, conventional wisdom would suggest that you buy one where you can look after it. It would also suggest that your acquisition should be where its value would appreciate and you can sell it easily. In short, if you are buying property as an investment, it would make sense to buy appreciating property where you can check on it from time to time.

If, however, you cannot find such suitable property near where you live, would it make sense for you to look at property outside the country? Looking solely at the comparative prices in Indian cities and in those abroad, if you can afford to own a house in India, you can in a few other places—Bangkok, Singapore and Dubai—as well. Should you, then, include those options in your set of possibilities as well?

What are the pros and cons of buying property abroad? What does property abroad do for diversification of your portfolio and mitigation of the risk that it carries? And what exactly are the implications for your taxes? It is, today, worthwhile to check these out when Indian property prices are high and not rising as fast as they were.

WHY INVEST ABROAD?

Just as in the case of investing in any other financial instrument, diversification in real estate investment by buying in different countries can also make sense for you. It can reduce the investment and country risk—typically, if a country’s economy is slow, it affects property price appreciation across locations—and increase your return.

Anshuman Magazine, chairman and managing director, CBRE South Asia, says: “Apart from the benefit of diversification, you can actually get options to invest in mature market with low valuation compared to India, such as Europe, Australia and so on.” Outside the main central districts and, in some cases, even in prime centre of the city locations, the property values are lower compared to Mumbai or Delhi and quality is also better, he elaborates.

Moreover, if you are looking for regular returns, rental yields are higher in mature economies. “In mature market, rental yield is between 4 per cent and 5 per cent on residential property compared to 1-2 per cent per annum in Indian cities,” says Magazine. For a quick look at some mature markets you can invest in (see Destinations To Consider).

Compared to India, the other advantage of investing abroad is the availability of funds at a lower cost. Rohit Kumar, head of research, DTZ, India, says: “In the current scenario, when interest rates at home are very high, it is quite a lucrative option for buyers with surplus money to buy real estate abroad. This way they can take advantage of the considerably lower rate of interests of local banks in those countries.” However, before you decide to invest in real estate in other countries, you must be aware of the limitations and rules pertaining to investing abroad, particularly in the country you intend to buy the property in.

THE INVESTMENT LIMIT

The current limit prescribed by the Reserve Bank of India for Indian individuals investing abroad continues to be $200,000 per annum. At current rupee-dollar exchange rates, that would be about Rs.1.2 crore a year. This ceiling is not for investment in real estate alone, but applies to any kind of investment in a foreign country. “The limit applies to individual buyers; so the investible amount doubles in the case of couples,” says Anuj Puri, chairman & country head, Jones Lang LaSalle India. Hence, in case you invest along with your spouse or children, you can actually invest a larger amount and, thus, can widen the scope of the property you buy. “The Indian government may consider relaxing the ceiling further if it perceives increased interest by Indians in investing in foreign properties,” says Puri.

Besides investing individually or jointly along with family members, there are some other ways as well of investing in property in a foreign country. Says Puri: “Indians often have the option of entering into joint ventures (JV) with local operators in foreign countries such as Mauritius, Bhutan and Sri Lanka; the UAE also offers such a facility in some quarters. Entering a JV with a foreign entity on its home turf can lead to vastly increased investment scope (beyond the $200,000 ceiling) and generate higher profits.”

THE LEGAL FRAMEWORK

When it comes to investing in another country, you must take into consideration the legal procedures that need to be followed in both in the home as well as in the foreign country. Rakesh Nangia, managing partner, Nangia & Associates, a Delhi-based chartered accountancy firm, says: “From an Indian standpoint, an individual has to submit a self declaration form under the Liberalised Remittance Scheme (LRS) guidelines covering basic details of the proposed transactions in the prescribed format, Form A2 and such other supporting documents which the authorised dealer (AD) may require.” An AD is a designated bank branch through which all the remittances under the LRS guidelines have to be made.

Says Nitin Mittal, manager, Perfect Accounting and Shared Services, a Delhi-based chartered accountancy firm: “The applicants should have maintained the account with the bank for at least a year prior to making the remittance; if the applicant seeking to make the remittance is a new customer, ADs should carry out due diligence on the opening, operation and maintenance of the account.”

Further, the AD should obtain a bank statement for the previous year from the applicant to satisfy themselves about the source of funds. If such a statement is not available, copies of the latest income tax assessment order or return can be used instead. Adds Mittal: “The applicant has to furnish an application-cum-declaration in the specified format regarding the purpose of the remittance and declare that the funds belong to him and will not be used for the purposes prohibited or regulated under the LRS guidelines.”

It is also advised to carefully understand the legal procedures and regulations of the destination country where immovable property is situated to ensure that the proposed investment adheres to the laws of the overseas country.

Says Nangia: “The LRS facility is not available for making remittances directly or indirectly to Bhutan, Nepal, Mauritius and Pakistan; For other countries, no specific permission is mandated under the extant LRS guidelines.”

Further, the country-specific laws where investment is to be made could also require prior permission from local regulators before investing in that country.

THE TAX IMPLICATIONS

The taxability of any person is determined on the basis of his or her residential status. Says Nangia: “An Indian resident individual is taxed on his worldwide income, which would include income from any immovable property situated abroad, either by way of rental income or any capital gains arising on alienation of such property.”

Under Indian laws, taxes for rental income from and capital gains on foreign property are calculated differently. Usually under the clauses of double-taxation avoidance agreements (DTAA) the owner can take the credit in India of taxes paid abroad. However, the income from property can also be taxed in the country where it located and this will be governed by the local laws of that country. “So, it is advisable to understand the taxation aspect of investing in overseas property well in advance,” advises Nangia.

ENDNOTE

For the sake of diversification of one’s real estate portfolio, one can look at investing in property abroad should resources permit. But with the prospect of greater incomes, comes greater complexity. If you can handle it, look at the foreign property alternative.