Investing in Overseas Real Estate

NRIs have an added advantage that, they are able to understand the nuances of investments abroad, and also are wealthy to diversify their investments internationally. Exposure to international investments in your portfolio, gets you a higher risk-return trade-off, as compared to a complete domestic portfolio.

Even for NRIs settled in India, the stable Rupee and stagnant growth of Indian Real Estate, have prompted them to look overseas for better investment options for better growth. With the Reserve Bank of India (RBI) increasing the overseas remittance limit to 250,000 USD, the path for diversifying your investments abroad, across various asset categories, has become wider.

Among all the asset classes, real estate still remains the favorite asset class for NRIs. The reasons for NRIs to invest in real estate abroad, may be due to frequent travel abroad, kids studying abroad or may have business interests abroad.

Another major factor for NRIs to tilt their real investments overseas, is that the properties in metros, in locations suitable for NRIs, are becoming very expensive. Also, the real estate sector in India is plagued by a lack of transparency, delay in completion of projects, average construction quality and poor consumer protection laws. On the contrary, real estate markets in Europe, UK and US are highly transparent and the investors are able to make a fair and profitable deal faster.

Options available for Overseas Property Investments

Traditionally, NRIs settled in India tend to invest in Dubai, Malaysia, Singapore, UK and Australia. However, Europe has become a popular choice as the properties are available at fairly low prices, due to the economic downturn in many countries like Greece, Spain, Portugal, Ireland, etc. Some countries are offering “Residency” if you purchase properties above a certain limit.

Investing in European real estate now, offers a dual advantage – benefit of currency diversification, as both GBP and Euro are stable currencies, and benefit of investing at lower prices. With the European economy set for recovery, investments made now are sure to fetch fairly good returns in the future.

Buying Real Estate abroad

You have to exercise utmost caution before you buy overseas properties. Though RBI allows remittance of $200,000 annually, you have to determine what is the limit for foreign investment, allowed in the country of your choice.  Many countries have restrictions on foreign investments in Real Estate. For e.g., Singapore allows foreigners to own apartments, but not land.

So, before you make a move to buy a property abroad, you should consider the Indian laws as well as the law of the land of your chosen property, regarding foreign investment policies. You should also check succession and inheritance laws. You should consider the cost of stamp duty and other prevalent property taxes of the country, in which the property is being purchased.

As a foreign investor, you might also be required to pay higher charges for property purchase and registration. Also, due diligence is a must for the property titles and records. It is best to hire a local agent and legal consultant to ensure the cost of purchase and the process of selling-buying is accurate.

As an NRI interested to buy properties abroad, it makes sense to hire a property consultant who is well aware of the property purchase formalities in the destination country. You should also consult a tax specialist who is aware if the tax laws of both India and the destination country.

Tax Compliance

Another major factor to consider is the tax laws in India for gains/income from overseas investments and tax laws in the destination country for the same. Unless, there is a Double Taxation Avoidance Agreement (DTSS) between India and the destination country, you would be paying a hefty sum as taxes on any gains made by sale or any income generated as rent. Fortunately, India has DTAA with a lot of countries and you may be able to take benefit of the DTAA.

Managing Overseas Properties

If you are not going to stay in your overseas property on a continuous basis or if you plan to rent it out fully/partially, then you can consider hiring a property management firm, which will take care of finding a tenant, collecting rent, maintain the property and pay charges due, on time.

Raising Funds for Overseas Property Purchase

For overseas property purchase, you can raise a loan from the local banks of the country, in which you are making the purchase. Depending on how much of the value of the property they fund, you have to arrange for the remaining funds. However, RBI limits remittances to USD 250,000 per annum. However, you can remit through your family member’s account, as the limit is applicable to each individual.

Since, the interest rates on loans are in the range of 2-4% abroad, you can take advantage of the low-interest rates.

Tips to buy Real Estate overseas

  1. Never accept the quoted price immediately. Bargain Hard.
  2. Visit the place multiple times, when the property looks the best and also, during the off-season.
  3. If you are buying an older property, get an estimate of the local cost of the repairs, before purchase.
  4. Hire a legal advisor, who can help you with due diligence and determine the process of the purchase transaction.
  5. Hire a tax consultant, who can help you with Indian tax laws as well as in the country, in which you are buying the property.
  6. Make suitable arrangements through banks in India and abroad, to remit funds overseas as well as to receive income from abroad.
  7. Know beforehand, the intention of your purchase. If you plan to invest for growth, go for an apartment in a city which can fetch you rent as well appreciate in value. If you want to buy a holiday home, opt for suburban areas or villages.

Advantages of investing in overseas properties

Some of the advantages of investing overseas are listed below:

  1. Properties in Indian metros are becoming very expensive. The same cost can fetch you a better property abroad, with good quality construction.
  2. Favorable tax laws and remittance rules for NRIs, places you in an advantageous situation to invest abroad profitably.
  3. By investing in an overseas property, you get the dual advantage of taking an exposure to other currencies and also, diversifying into real estate asset class.
  4. Rental properties abroad, offer a rental yield of at least 4-8% of the value, whereas in India, the rental yield is as low as 2-4%.
  5. In India, the developers sell the properties by including the cost of building common areas. The total carpet area of your home, might be less than the Super built-up area by 20-25%. In most other countries, all properties are sold by carpet area only, i.e. you pay only for the exact area of your property.