Should you buy an apartment at Dubai's Palm Jumeirah?

Indians remitted $9 million overseas for buying property as of October 2018, under the Reserve Bank of India's Liberalised Remittance Scheme (LRS). In September it was $8 million. The popular locations for Indian property buyers include Singapore, Malaysia, New York, Dubai and various cities in the UK, mainly London.

Under the LRS, resident individuals can remit up to $250,000 in a financial year to acquire assets like property, shares, debt, etc. So, if each member of family of four remits that much, they can remit a total of $1 million, which is why almost 80% of Indians buying overseas prefer to spend on property, according to a report by Knight Frank.

In fact, investment in Dubai starts at Rs 80 lakh, according to the Dubai Property Show, which was recently organised for the fourth consecutive year in Mumbai. Indian buyers have been one of the top five investors in Dubai's real estate and had invested a total of Rs 30,000 crore in 2017, according to data from the Dubai Property Show.

Indians are steadily increasing their global presence in the form of their business and leisure interest. As a large global community, interest from Indian citizens in acquiring assets in global locations is high, said experts. Those looking to buy properties abroad would include business owners, professional property investors, mid-to-top level company management and high networth individuals.

Let us look at why Indian investors prefer to buy property abroad and what are the conditions to keep in mind.

Reasons for buying

The 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.

Most Indians buyers brought properties abroad for investment purposes followed by the aspiration of having a second home. "The real estate market in many countries offers very lucrative investment prospects, with various offers and options. Apart from that, Indian citizens buying property abroad can, in some cases, avail of residency in the host country. This factor has a considerable operational value with many,'' said Anuj Puri, chairman, Anarock Property Consultants.

According to Girish Shah, executive director, marketing & corporate communications, Knight Frank India, some reasons for Indians to buy properties in international markets include frequent visits to the country on account of business or leisure, presence of immediate or extended families in these countries, education of children in these countries, easy home buying policies for global citizens in India and reasonably good yields.

Preferred locations

An analysis of the trends in the last three years indicates that the UK, USA, UAE, Singapore and Hong Kong were the most preferred markets by the Indian wealthy. Those who found properties in the US or UK out of reach, preferred to invest largely in Dubai as Indians have traditionally had a strong business interest there and in the last decade the country has relaxed their policies towards foreign citizens looking to buy properties. Investment in Dubai started at Rs 80 lakh, according to the Dubai Property Show.

Pros and cons

Other than the aspiration factor, high property prices in India and rising interest rates are some stumbling block for those looking to invest in property. As against this, an Indian citizen who wishes to buy property in New York, London or Singapore can avail of the considerably lower interest rates of the local banks in those countries. Also, many foreign property markets are more transparent than our own, so investors can get 'clean' deals much faster and easier, said Puri.

While returns on investment are entirely location-specific, they can in many cases be much better than in India, especially in the more transparent markets and in locations with high demand and lower supply, Puri said.

If the purchase is for self-use, it will ensure that your boarding and lodging expenses are reduced to the minimum.

Investment in property, irrespective of the country, has some standard considerations. If the property is for self-use, the same can be taken at a time and at a cost that is most convenient.

If it is for investment, the buyer needs to consider the rental yield as well as the capital appreciation it can provide. Rental yields differ from location to location, but broadly markets like the UK, Canada and Dubai are seen to provide good rental yields.

"We must remember that these markets have seen volatility in the past during the subprime and the EU crisis. Thus, a blanket assumption that investment in property will only appreciate may not hold good,'' said Shah.

Conditions to keep in mind

Those 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 inadvisable to invest in any kind of project announced by a company or other seller that has no physical representation on the Indian soil. The exception would be where one has personally established the legal and market bona fides of the seller,'' warned Puri.

Secondly, one must keep in mind that most foreign property markets have their individual regulatory and permission mechanisms. While RBI does permit investment of up to $250,000 per annum, one must establish whether one is eligible to invest in the country of choice to begin with.

Shah listed some general guidelines to keep in mind:

• Keep the mortgage percentage as low as possible to shield from market and currency volatility
   
• Choose a country that has friendly foreign ties with the India and one that allows unabated entry and exit for property users
   
• The property should have a clear title and be registered under the law of the land

INVESTING IN OVERSEAS PROPERTY

• Rs 30,000 crore – Money invested by Indians in property in Dubai in 2017
   
• $9 million – Outward remittance from India for buying property as on October 2018
   
• Rs 80 lakh – Starting investment in property in Dubai