Pros and cons of investing in overseas property markets

Is it worth investing in a property market abroad, for an Indian buyer? We examine the advantages, the costs and the things that a potential overseas investor needs to watch out for

Real estate investments in overseas markets, are gaining popularity amongst Indian buyers. According to Mona Jalota, director, international and NRI, residential services, at Colliers International, there are several factors, which make an overseas property acquisition more attractive than investing in the domestic markets.

“The most common reasons are the unaffordable prices in the metros, which offer little or no growth potential, high home loan rates and the lack of rules and regulations governing the real estate sector. Consider an example, where at the cost of Rs 35 lakhs, a property investor can get a fully-furnished condo unit in a premium location in Thailand, which not only offers an excellent lifestyle but also a chance to earn 10 per cent net rentals. As opposed to this, the same investor will perhaps be able to purchase a small, unfurnished 1-RK apartment in the suburb of Dahisar on the outskirts of Mumbai, offering no lifestyle and practically no rental income,” explains Jalota.

Other than lifestyle and rental returns, the other most important reason for Indians to invest overseas, is their children studying abroad.

Experts believe that the strengthening of the Indian rupee and the drop in property prices in foreign markets, have significantly contributed towards making overseas homes desirable. London, for instance, saw a fall in property prices in the wake of the Brexit vote. According to a report by Knight Frank and IREX, titled ‘Looking Beyond Borders’, resident Indians buying homes in the United Kingdom, Cyprus, Malaysia and Dubai (as on the quarter ending in June 2017), would find it cheaper as compared to a year ago. This is despite property appreciation in residential markets at these three destinations.

 

Investment in overseas property markets: Opportunities and bottlenecks

OpportunitiesBottlenecks
Excellent lifestyle option.Transient regulatory norms of governments.
Low entry rates and value for money invested.Resistance to foreign purchasers in several countries, leading to higher cost of purchase.
High rental returns.Tax implications, in the case of absence of treaties to avoid double taxation.
Full management services easily available.Changing laws, vis-à-vis overseas buyers.
Regulated procedures and simplified buying and selling.

Table information provided by Colliers International

See also: Important guidelines for buying a property outside India

 

Samantak Das, chief economist and national director – research, Knight Frank India, maintains that investments made in foreign properties have reaped rich dividends for Indians, from a long-term perspective. “For instance, overseas homes bought at the end of the quarter ending June 2012 and disposed of five years later, gained from the investments in four out of the five most-preferred international markets. While price fluctuations and difference in currency value are not too difficult to decipher, understanding the taxation structure of a foreign country could be cumbersome. Tax-related regulations are also dynamic in nature. Buyers must, therefore, seek expert advice, to make informed decisions,” says Das.

 

Benefits of choosing overseas realty markets for investment

  • Transparency in the buying process.
  • Fixed prices.
  • Timely deliveries.
  • Higher rental returns.
  • Value for money.
  • Investor-friendly payment schemes.
  • Favourable RBI regulations.

 

Drawbacks of choosing overseas realty markets for investment

  • Difficulty in obtaining mortgages without the relevant paperwork.
  • Lack of inventory, as sales happen worldwide.
  • Long decision-making time of investors leading to timely benefits being lost.

 

“Indian real estate investors, who have diversified into global markets, typically look for a healthy mix of capital appreciation and good rental yields.”Mona Jalota, director, international and NRI, residential services, at Colliers International.

 

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