The Indian economy has been attracting noticeable foreign fund flows since the liberalization in the 1990s. Simultaneously, there is a rise in the number of Indian HNIs (high net-worth individuals) looking to broaden their horizon and make investments outside of India. Many Indians have aspired to invest in international real estate for a higher alpha, which means how an investment can outperform.
The Liberalized Remittance Scheme (LRS), depreciating currency, stable policy, and a higher return from the respective market are the reason behind HNIs investing in the overseas real estate market. The high rental returns from international real estate also help attract funds.
HNIs are individuals with a net worth of more than ₹5 crores. Whereas, UHNIs are individuals with net monetary assets (liquid property) of at least $30 million or over ₹230 crores, excluding primary residences and consumables. The latest edition of The Wealth Report 2022, quoting several consultants and specialists on investment, says India has the youngest HNI population in the Asia-Pacific region, with the billionaires club including 28-year-olds.
Identifying new markets
Earlier, the foreign real estate investments were limited to West Asia and Far Eastern countries such as Thailand. But now there are exceptions as several opportunities for real estate investment in countries such as the United Kingdom, Cyprus, other European countries and the United States, have opened up. In many of these countries, the real estate market is thriving, and some Indian investors have been investing in these properties for many years.
Benefits of investment
There are a variety of benefits for these investments, ranging from Indians setting up their overseas business to buying a vacation property or a second home in a location where the value appreciates, such as Dubai, to acquiring residential apartments for their children studying at foreign colleges in the U.S. and the U.K. Investment abroad is sometimes viewed as a retirement alternative since the rentals are more stable and are supported by variables such as favourable conditions, a better quality of life, and weather conditions that are moderate. As a result, purchasing commercial/ residential property for investment purposes is becoming a significant consideration.
Taxation and robust ecosystem
Other incentives that motivate Indian HNIs to invest in overseas real estate include investor-friendly taxation policies, improved infrastructure, travel and tourism, and world-class medical and educational facilities. Over the last decade, these international markets have offered strong returns to investors. Real estate prices in the U.K. are an example of this as the real estate purchase and rental rates are at an all-time high as a result of the government’s investor-friendly policies.
Asset allocation
After the COVID-19 pandemic, several Indian HNI and UHNI investors purchased property overseas to establish a platform from which they plan to grow their businesses. Foreign investment is also seen as a healthy asset allocation strategy for them.
The fundamental goal is to relocate to a foreign country with superior health infrastructure and immunisation services. Premium luxury homes are preferred by Indian investors. These are mainly self-contained villas and flats with easy access to the Central Business District. Properties near an education centre are also popular since rich Indians send their children overseas for higher studies at prestigious colleges that provide greater privacy.
Indian HNIs are also showing an interest in residency alternatives that provide visa-free access as well as a host of other benefits, with real estate serving as the primary investment. Hence, over the past few years remittance under the Liberalized Remittance Scheme (LRS) has seen tremendous growth with the outflow touching an all-time high. The LRS option might benefit many Indian investors who are seeking to purchase real estate assets overseas in order to diversify risk and maximise their rewards.
Indian citizens can now buy property overseas in a variety of ways. Each of these avenues is subject to different legal constraints and has different tax implications for the buyer, both in India and abroad. Purchasing property in another country thus needs some planning to guarantee that overseas property investments are both legal and tax-effective. Correctly structuring a foreign property transaction can considerably reduce the risks associated with buying property overseas.
The writer is founder & CEO, Millwood Kane International.
