Real estate, like shortcuts through cities or the best biryani in town, is something that everyone will give you advice on as soon as the topic comes up. When you’re looking to buy real estate abroad, however, there are an entirely different set of factors to take into account. You need to change the way you approach an acquisition.
A studio in a European capital for the child at university? An equatorial villa for that balmy tropical getaway? A plush city centre apartment to park your traders? Indian buyers are taking into account a mix of reasons to put money in overseas property.
Before we get the big three traditional hotspots—London, Singapore and Dubai—out of the way, let’s understand the Indian buyer. Individual buyers tend to be the new-age businessmen in the 35-50 age group who already have a first urban home in a metro, a second holiday home in places like Goa or Lonavla and are now looking to buy a third property. The typical reasons for this international investment differ and interestingly, they tend to depend on which city the buyer hails from. For example, younger investors from Bangalore are more open to alternative, exotic destinations, whereas Delhi buyers are swayed by competition in social circles. Industrial buyers tend to pick up two centrally located apartments at once. In some cases, they are meant for children or parents to occupy and in others, they serve as rental purchases. Sometimes, they are used as leverage for foreign bank loans. In today’s volatile world, having a home abroad is a way to hedge your bets and spread your risk.
The words ‘risky investment’ and London don’t usually go together. Indians have a historical connect with London—more with its concept and its status than the city itself. According to Mona Jalota of Knight Frank India, London has always been the “aspirational” buy and this shows no signs of changing. There are two main groups of buyers: Those looking to pick up studio apartments for their children studying at a local university and big-ticket investors looking for central London properties. The central London housing bubble has ensured that buying an independent house or large apartment just for staying is not a viable option. According to a Knight Frank report, “Prices for the most sought-after central London properties have risen about 44 percent in the last three years, more than twice the increase across the capital as a whole”. Luxury 1BHKs (an apartment with one bedroom, hall and kitchen) start at £1 million with iconic properties like 1 Hyde Park starting at £6 million. Two BHK houses in the Greater London area, like the swanky suburbs of Wimbledon and Chiswick come for a price tag of at least £500,000. The government levies a stamp duty of 4 percent on homes costing £500,000-£1 million, 5 percent on those priced at £1 million-£2 million and, as of this March, a whopping 7 percent on homes above £2 million.
Besides its aspirational quality, there are compelling reasons why Indians love to invest in the real estate of this famous old city. London is a global financial and trading hub for sectors like banking. Because there is no language barrier, it also serves as a gateway to Europe and a good base for commercial buys. As a city, its real estate market has been resilient compared to the global one in spite of analysts claiming for months that the bubble will burst. The reality is that in the light of the Eurozone crisis, upmarket boroughs like Kensington & Chelsea and Hammersmith & Fulham have become the one-stop investment destination for the rich and famous from Russia, China and continental Europe. Its market defies the global slowdown because there is always an oligarch or two sniffing around and keeping prices high. Over the years, London has shown that it is an expensive but sound investment.
Good, but no chewing gum please!
However, if you are looking for all the “infrastructure” of the developed world with a little equatorial warmth, then you might want to look east. Those yearning for authentic Indian food need look no further than another former British colony. As someone once said, “Singapore is the best city in India!” There are more Indians there now than ever before, even leaving aside the indigenous Tamil population that make Little India the vibrant enclave it is. As Singapore has grown into a regional trading and education hub, Indians have flocked to the squeaky clean island. In spite of residency not being offered to foreign buyers, many bankers and industrialists have put money in the bustling city with a climate similar to India’s but infrastructure and quality of life that are worlds apart, says Jalota. She adds that buyers use Singapore properties to open doors; as offshore investments, they can be easily leveraged against new projects by foreign banks. Top class universities like the National University of Singapore, the Nanyang Technological University and the Singapore Management University have attracted students and, with them, studio apartment buyers. Villas and independent houses are rarely sought because they are often just as expensive as properties in London: You won’t find any quality property below SGD 1.5 million (£760,000/Rs 6.4 crore). For larger buys, you just don’t get that bang for your buck.The stable sultanate
Many businessmen, especially those in South India, have ties with the Middle East. Two locations in the region are very popular with the Indian buyers: Dubai and, of late, Oman.
Dubai’s reputation as an investment hotspot has taken a hit following the recent financial crisis, but it is still popular among Indian buyers for the trade and business convenience it offers. In spite of the precautionary attitude, ties to local industries like jewellery, spices, dried food and textiles are strong. With many South Indian businessmen now looking to settle their families in the city, its draw transcends that of a “trading hub”.
As far as Indian buyers are concerned, there is cause for optimism. Jones Lang LaSalle data shows that residential villas have outperformed apartments for the first three quarters of 2012 and this shows no signs of changing. Research for Q2 this year shows that the villa sale price index is 14 percent higher than it was at the beginning of 2008, with prices and rental yields up 23 percent and 7 percent, respectively, year on year.
Household names like Emaar—which offers serviced apartments in the Burj Khalifa besides villas—and Jumeirah are falling over themselves to offer Indian buyers a slice of the emirate; a premium purchase in a prime locality will not wilt if the market goes under once more.
That said, the markets are hard to win back once scorned and uncertainty around Dubai’s long-term financial security means that it is losing buyers to one of the new kids on the block, Oman. The sultanate is one of the most stable countries in a notoriously unstable region. It is modern, peace loving and home to a large Gujarati business diaspora with numerous trade ties to India. Jalota says a big challenge for her is educating Indians about Oman and clearing misconceptions. The climate is hit and miss: Summer lasts from June to September and gives residents the full desert treatment with average (!) highs of 40°C and lows of 30°C. If you can manage that, the rest of the year is relatively pleasant with maximum temperatures between 25°C and 35°C and night temperatures between 15°C and 22°C. What is attracting a lot of interest from Indian buyers is the price of expatriate villas, the well-planned coast line and the offer of residency for the buyer and their immediate family. The main attraction for all of Oman is the value for money. A crore in Muscat would fetch a palatial apartment—what would it get you in Mumbai? Scale up a bit and Rs 2.9 crore gets you a 2,400 sq ft villa; rental yield is 5-7 percent, which again outperforms the Indian market significantly. Add into the equation no income tax and no capital gains tax and one begins to see why stories of textile traders buying twin apartments—one for self and one for parents as a beachside retirement home—are becoming more and more common. The fact is that the well-heeled pay for stability and that is one thing Oman can boast.
The lure of the exotic
Now that you’ve sampled the standard fare, take a look at the exotic and the dynamic. Kenya and Cyprus, for instance.
Kenya has established itself as one of the most progressive and stable countries in Africa. Leaving aside the many small- and medium-sized businesses headed by Indian immigrants since the ’60s, large business houses like the Tatas and Reliance have big operations in Kenya and corporate buyers have sought weekend homes away from capital Nairobi for their executives.
It is important to remember that Kenya is a developing African economy and deficiencies in security, transparency and infrastructure must be taken into account. You do not get the security of Singapore, and therein lies the trade-off. What you get instead is a country whose capital city and coastal getaways are great value.
Luxury real estate price growth in Nairobi is outperforming London, Hong Kong and Miami, while values are still very affordable due to the market being fuelled by local buyers and the Kenyan diaspora. A country-style mansion in a gated community in Nairobi will set you back just $1 million. Drive 40 minutes to the coast, however, and even bigger bargains await. With beaches in India becoming more and more crowded, private access to the white sands of the Indian Ocean certainly has its draw. Fully serviced 4,474 sq ft beachside villas start at Rs 4.7 crore with rental yields of 8 percent per annum and 20-30 percent annual appreciation.Sunny Cyprus
Now, for the clever option. Cyprus could very well be the next big thing—at least that is the buzz among property consultants. The Mediterranean island has been hit hard by the Eurozone crisis and has opened itself to foreign investment. The 300 days of sunshine a year and the Mediterranean lifestyle are not the only things that interest Indian buyers—just €300,000 earns you the much-sought-after EU Residency, subject to compliance and regulations of course. This is a huge draw for Indians, for whom travel through Europe is much hindered by the visa hassles that usually come with it.
Cyprus and India have a double taxation agreement with no inheritance tax. Keep in mind that there is a reason why Cyprus is so cheap: The economy—one that relies heavily on its housing market—is in the doldrums with 10 percent unemployment, up from 4 percent when it joined the Eurozone. Its private sector debt is the second highest in the EU and its banks teeter on the brink. The housing market, like the rest of southern Europe, took a big hit and if you want to pick up property at one of the gateways to Europe, advises Jalota, now is the time. Also bear in mind…
Jalota informs us that many Indians who burnt their fingers investing in China and Thailand are looking west. Thailand in particular didn’t live up to its hype, with natural disasters, fraud, no offer of permanent residency and an unreliable market dissuading Indian buyers of late. Only those with a real love for the country have said “Sawatdee Khrab” and taken the plunge.
What the Indian buyer must come to terms with is rental yields abroad will almost always outperform those at home manifold; developers are far more obligated to stick to their word than in India; and value for money per square foot is much more realistic than what we’ve become used to in our metros. Remember that maintaining a property abroad is easier said than done and even if you have a good agent, chances are you will be shelling out high monthlies on upkeep. While the price of a Pali Hill apartment (in Mumbai’s posh suburb Bandra) will only go one way, your money will probably work harder for you on foreign shores. With housing markets generally down from their 2007 highs, there has never been a better time to add a foreign string to your bow.
(This article is excerpted from the latest Forbes India 23 November, 2012 issue which is now available at news stands and book stores. You can buy our tablet version from Magzter.com)