Think local, act global

Sourcr:FC Estate:Sarbajeet K Sen Apr 07 2010


Increasing number of Indians might spend their future overseas jaunts in the leisure of
their own homes in destinations spread across the globe. With their purses heavy with cash, coupled with a desire to possess a second home away from the country’s shores, high net worth Indians are scouting overseas markets to seal property deals, especially at a time when things are selling cheap in many places.

London appears to remain the top pick, but new destinations are getting added to the list for Indian investors seeking to purchase property overseas. Sensing bargain deals post global financial crisis, the Indian rich are beginning to scout markets as diverse as Singapore, Dubai, Hong Kong, Mauritius and also the United States.

Experts tracking trends in real estate sector point out that the Indian property investor is beginning to show higher interest in acquiring properties abroad in the wake of the sharp fall in prices, making investments in overseas market quite attractive in risk-reward terms.

“We are seeing higher interest among Indians to acquire property in overseas markets where prices have fallen sharply over the past year. I would not say there is huge rush but certainly the enquiries are on the rise,” Anshuman Magazine, chairman and managing director, CB Richard Ellis –south Asia, told FC Estate.

Pranab Datta, vice-chairman and managing director, Knight Frank India, agrees. “Post the global real estate meltdown which led to price correction in most markets, there is no doubt that property prices have become attractive in many locations leading to renewed buyer interest,” Dutta says.

However, he feels that anticipation of a further fall in prices is holding some of them back from going ahead immediately with the purchase. “Indian buyers are generally perceived to be more cautious, particularly after the correction in the local markets. Hence, while interest in overseas buying is finding expression, yet anticipation of further downside in prices is leading to cautious buyer behaviour,” says Dutta.

Property market experts say that from the earlier limited interest in buying property mainly in the UK, Indian tastes seem to be getting increasingly more global. “Earlier, the United Kingdom was the most popular destination for property purchase by the richer Indian. Many new destinations are now being added to the list. These include the Middle East, especially Dubai, besides Singapore, Hong Kong and Thailand. Lately, it is found that Malaysia and Mauritius are also coming under the radar and there is also a small interest in the US market,” magazine said.

Knight Frank’s Dutta also points out that London remains among the top picks for India property buyers. “The most preferred markets are London and Singapore,” he said.

He feels that investors are still cautious about places such as Dubai, where there is a possibility of further downside. “While prices in Dubai have crashed, the general impression is there is room for further downside. Hence, under these conditions the approach is one of exercising caution,” Dutta said.

Sanjay Dutt, CEO, business, Jones Lang LaSalle Meghraj, adds Australia and Canada to the list. “Indian investors are traditionally quite familiar with the property markets in the UK, Canada, the US, Dubai and Australia. These are markets that are always being monitored at various levels from Indian shores,” he says. Dutt feels that Dubai is emerging as a focus destination. “Many Indian investors are beginning to focus their investments within Dubai because they see an opportunity to pick up previously overpriced properties cost-effectively, with the expectation that demand will revive again in the long term. Moreover, many Indians also have commercial interests in Dubai, which has a close emotional fit with the Indian community because of the large diaspora existing there,” he said.

Even real estate developers from Dubai are increasing their focus on Indian investors, Dutt points out. “Many real estate developers from Dubai are zeroing in on Indian investors now. This makes business sense because Dubai is both geographically and sentimentally in the close neighbourhood of the Indian subcontinent. This creates a natural affinity for investments from this country. Another factor would be the relative ease of investment that exists for Indians in Dubai. The fact that a large number of Indians have business and personal interests there also makes them a natural customer catchment,” he said.

Thomas George Muthoot, managing director, Muthoot Pappachan group, a non-banking finance company that extends home loans, says that the Middle East market, especially Dubai, is hampered by the ongoing uncertainty that the emirate is facing. “Real estate prices in the Middle East have come down sharply during recent times and there may be good opportunity for those with investible resources to strike deals in these markets. However, purchases might be restricted due to the ongoing uncertainities and the somewhat restrictive laws for owning property is some markets, including Dubai,” Muthoot said.

The desire by Indian HNIs to buy overseas property is being backed by liberal remittance rules of the Reserve Bank of India that permit a person to remit up to $200,000 (Rs 90 lakh) per year for the purpose. “The most important procedure is with regard to the RBI regulations – transmission of monies for acquisitions of property abroad. As per the present regulation, the amount that can be remitted for this purpose is a maximum of $200,000 per individual per year. Hence, a family of two can remit approximately $400,000 per annum for property purchased abroad,” Dutta points out.

Magazine feels that it is not just the bargain deals available that are prompting the Indian HNIs to look overseas but other factors as well such as the pure glamour quotient. “Owning a second home overseas in some of the better known destinations has a glamour quotient involved. Other than that, we are seeing the income levels in India going up and more Indians are travelling abroad which is giving them greater awareness of the places,” he says.

Magazine also points out that after the recent slide in prices overseas, the value of property in many markets might appear to be cheaper than those in India. “Properties in many of the more sought after destinations have become relatively cheaper compared to the offerings in India, except perhaps in London and New York. The quality of construction is often of higher standards,” he said.

Pranab Datta points out that the demand is more for high-end properties meant for self use. “Overseas properties are being sought by business people, industrialists and very senior professionals who prefer to buy in locations regularly frequented by them. Typically, these would be high-end properties for self use,” he said.

Magazine agrees that properties abroad are being sought mostly by end-users. “Queries are mostly by end-users. Those buying may be having businesses abroad or want some kind of a holiday home,” he said.

On advisability of buying property abroad, Knight Frank’s Dutta says that an individual’s decision should be based on the familiarity with the market. “Whether to invest in a property abroad totally depends on the individual and their familiarity with the foreign market. Those who are conversant with the property market abroad and follow it closely may be equipped to invest in these markets,” he said.

Pallav Sinha, managing director and chief executive officer, Fullerton Securities & Wealth Advisors, feels that it is always advisable to diversify investments into various markets. “A smart investor should be looking at investing in overseas real estate market. We always advise diversification. This is same as in equities. Ultimately, as in equities, our advice for a high networth individual is that if you are really stacked up on Indian equities then do start looking at some of the other emerging market offshore funds for diversifying,” Sinha told FC Estate.

What’s in store, going forward? “In the days ahead, I feel that with higher disposable incomes and greater awareness, there would be a much higher interest among Indians in overseas markets,” says Anshuman Magazine. A classic case of the high neworth Indians looking beyond the seven seas.