Indians’ spends on overseas homes swell manifolds: Knight Frank-IREX report

Indians’ spends on housing investments overseas, rose by almost 59-folds, from USD 1.9 million in 2005-06 to USD 111.9 million in 2016-17, with compact apartments of less than 1,500 sq ft emerging as the most preferred property size, says a report titled ‘Looking beyond Borders’, by Knight Frank India and the International Real Estate Expo (IREX). The report takes a closer look at the buying behaviour, investments returns, preferences and key drivers pushing resident Indians to acquire residential property on foreign soil.

Table of Contents

Key findings

The overall findings are based on 10 countries: Australia, Sri Lanka, United Arab Emirates, Malaysia, Cyprus, Mauritius, Thailand, USA, Philippines and United Kingdom.
Detailed analysis of the six most-preferred markets: Australia, Sri Lanka (except return on investments), United Arab Emirates, Malaysia, Cyprus and United Kingdom.
The share of funds spent on buying homes abroad through the Liberalised Remittance Scheme, dwindled from eight per cent in FY2006 to one per cent in FY2017. However, the quantum of investments rose by almost 59-folds, from USD 1.9 million in 2005-06 to USD 111.9 million in 2016-17.

According to Samantak Das, chief economist and national director – research, Knight Frank India, “Our perceptions on buying international property, have been largely confined to high net worth individuals buying luxury housing at picturesque foreign locations. This report looks beyond that stereotype and throws light on mainstream residential property purchased by resident Indians, from other income groups. The report findings reflect healthy returns on investments for such buyers, which augurs well for the real estate sector as a whole.”

Investments in overseas property five years back

Resident Indians buying overseas homes at the end of Q2 2012 and selling the property five years later, gained from the investments in four out of the five most preferred international markets.
Resident Indians investing in homes in Cyprus lost money, owing to the decline in property prices, coupled with appreciation of the Indian rupee, making it the only international market where it did not gain on investments.

At 51.6 per cent, Australia witnessed the highest property appreciation, followed by Malaysia (43.8 per cent) between Q2 2012 and Q2 2017.

Residential property buyers in Dubai have benefitted the highest, with an overall return of 49.3 per cent, followed by Australia at 38.7 per cent.

Dubai offered dual returns as the Indian rupee depreciated versus the local UAE currency and property prices in the Gulf destination appreciated between Q2 2012 and Q2 2017.

Despite the strengthening of the Indian rupee against the currencies of Australia, Malaysia and the United Kingdom, the impact of appreciation of property prices outweighed the impact of currency appreciation.

Investment rationale for an investor investing today

Strengthening of the Indian rupee against several global currencies, has made investments in overseas homes more affordable than a year ago.
Resident Indians buying homes in the United Kingdom, Cyprus, Malaysia and Dubai today (as of end of Q2 2017), would find it cheaper as compared to a year ago. This is despite property appreciation in residential markets across Cyprus, UK and Malaysia.

Buying a house in Malaysia is the cheapest followed by Dubai.

Acquiring a residential property in Australia would be 11 per cent steeper now (as of end of Q2 2017), over the same period last year, as property appreciation has outweighed the advantage of the strengthened Indian rupee.

Investments and tax costs

At 32.9 per cent, Australia had the highest tax incidence and overall cost amongst the countries that we have considered.
Dubai offered the lowest incidence of tax but the overall costs (including tax and non-tax cost) for property investments are the lowest in Malaysia while investing in a property.

Home preferences

Queries from resident Indian buyers increased marginally, from 11 per cent in 2015 to 15 per cent in 2016 and held steady around that mark this year.
Similarly, sales volumes rose from six per cent in 2015 to eight per cent in the subsequent year and sustained at seven per cent this year.

Most resident Indian buyers intend to purchase property abroad for investment purposes, followed by the aspiration of having a second home.

63 per cent of the resident Indian buyers preferred compact apartments of less than 1,500 sq ft.

About one-fifth of the resident Indians showed a preference for a villas, since countries such as Cyprus and Sri Lanka are perceived as second home options and holiday destinations.

Approximately 77 per cent of the Indian buyers prefer a property that is less than USD 1 million.

Almost one out of four resident Indians prefer to spend more than USD 1 million for a house overseas.

Speaking about the report, Shishir Baijal, chairman and managing director, Knight Frank India said “Our ideas of homes have clearly travelled beyond the native frontiers of imagination synonymous with the concept. Today, resident Indians investing in residential properties overseas, are mostly sound investment decisions.”

Country-wise break-up

Australia

The Australian education system is one of the best in the world. Children’s education has been cited as the most prominent reason, for buying a house in Australia.
50 per cent resident Indians showed preference for a property size exceeding 2,000 sq ft, in contrast to the overall penchant for compact homes.
37 per cent resident Indians are keen to pay more than USD 1 million for buying a property in Australia.

Sri Lanka

Investment purpose is the highest ranked reason for buying a property in Sri Lanka, closely followed by the property being bought as a second home and for self-consumption.
66 per cent of the resident Indians prefer property sizes up to 2,000 sq ft in Sri Lanka.
64 per cent of the respondent Indians are willing to pay less than USD 1 million in Sri Lanka.

UAE

67 per cent of the resident Indians prefer an apartment size of less than 1,500 sq ft in Dubai.
80 per cent of the respondents prefer a compact property, priced less than USD 1 million.
A two-bedroom apartment across prime locations such as Dubai Marina, Business Bay and Palm Jumeraiah, command a ticket size of approximately USD 0.5-1.3 million, an unthinkable price for a similar property in India.

Malaysia

88 per cent of the resident Indian buyers prefer houses smaller than 2,000 sq ft.
Kuala Lumpur is the most preferred city in Malaysia for Indian buyers.
Smaller houses are increasingly becoming preferred by domestic and expat real estate buyers.

Cyprus

67 per cent of the Indian home buyers prefer a property size less than 1,500 sq ft, in Cyprus.
Cities in Cyprus attracting Indian buyers: Limassol, Paphos, Larnaca, Paralimni and Nicosia.
56 per cent of the respondents are willing to pay less than USD 0.5 million, to buy a property in Cyprus.

UK

Children’s education and use of the property as a second home, are the primary reasons why resident Indians buy a property in the UK.
79 per cent of the Indians prefer compact homes in the 1,500 sq ft category.
89 per cent Indians prefer properties in the ticket size of less than USD 1 million.

“Resident Indians are increasingly investing in properties abroad. While this report will help Indian investors in identifying the best locations for property investment, it will also immensely help international developers and property marketing companies, in understanding the Indian market and help them take marketing decisions,” said Vimal Anand, director, Global Media Network.

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