The general consensus among many experts today, is that there is limited choice for new real estate investments in India’s metropolitan regions, given the spiralling prices of real estate and the lack of confidence in Indian developers, owing to their lack of transparency, poor construction quality and delays in completion of projects. Moreover, the economic slowdown in parts of Europe, has also contributed towards making properties abroad affordable. These factors have created opportunities for Indians, to own properties abroad.
“Apart from the security of investing in the real estate asset class, owning a property abroad is perceived to have several advantages for high net-worth individuals (HNIs) – the property may serve as a holiday home, an accommodation for children who study abroad, and in some cases, it may even be a potential retirement destination,” explains Kalpesh Maroo, partner, BMR & Associates LLP.
How can one buy property outside India?
“The procedure to buy a property varies by region. For example, Singapore permits foreigners to purchase apartments (condominiums) but not land; while Thailand will allow foreigners only a leasehold title to the land for a renewable, but ultimately limited period of time; and in Dubai, apartments are sold as leasehold properties. For each country and property type, the due diligence requirements and purchasing procedures are different,” elaborates Rohan Bulchandani, co-founder and president, Real Estate Management Institute (REMI) and The Annet Group.
Bulchandani has several recommendations for those who wish to buy a property outside India:
- Negotiate the purchase price, after considering all the associated fees (legal, taxes, insurance, maintenance, brokerage, etc.).
- Liaise with a local property broker/firm of repute, to understand and help you through the process.
- Appoint a local lawyer, to assist with the legal due diligence.
- Enlist the services of tax consultants to comply with tax regulations. In some cases, a firm may have offices in both countries.
- Consider hiring a property management firm, which could take care of leasing the property, collecting rent, payment of charges, maintenance, etc., after the property is purchased.
- Make arrangements to remit funds overseas, for the purchase. Under the liberalised remittance scheme (LRS), all resident (Indian) individuals, including minors, are allowed to remit USD 2,50,000 per financial year. Thus, a family of four could remit up to USD 1,000,000 per year. A resident Indian can use the LRS to acquire property.
“While investing abroad, investors should scrutinise the credentials of the developer, the location of the project and the amenities it provides for residents. They should also evaluate the available home finance options and consider the community management aspects of the project, which will be crucial in determining the long-term value of the investment,” advises Raghuraj Balakrishna, chief financial officer, Nshama.
According to him, Indians looking for realty abroad, could consider investing in a second home in Dubai. “Indians can look at property in Dubai, for long-term investments with good returns and for the rental yields that continue to be healthy,” he says.
The tax implications of investing in a property abroad, can be quite complex. Income from property investments abroad, generally invites tax in India, as well as the country in which the property is situated. One should also consider the stamp duty and estate duty implications, and other prevalent property taxes under the laws of the country, where the property is being purchased.
The investor should evaluate these costs and the manner in which they would be funded from India, before making the decision.