by
Ms. Surabhi Arora,
Colliers International
Reserve
Bank of India (RBI) has increased the foreign remittances limit up to
USD 2.5 lakh (Rs. 1.5 crore) per financial year per person.
This
opens up many opportunities for Indians. Buying a property overseas
is a good idea, however one must conduct due diligence.
With
increased globalisation, it is becoming a norm for savvy investors to
allocate a share of their portfolios in foreign assets as
international portfolio diversification allows them to get superior
risk-return trade-off than the portfolio of domestic assets.
However,
the size of this share usually depends on cross-country rules and
regulations, and limitation on investment.
The
increase in foreign remittance limit up to USD 250,000 (about Rs. 1.5
Crore per year) under the Liberalized Remittance Scheme (LRS) by RBI
for resident individuals has broadened the doorway for investors to
invest in different asset classes across borders. |
| Ms. Surabhi Arora, Colliers International |
Under
the Scheme, resident Indians can invest in other countries out of
bank accounts opened abroad. Accordingly, Indian resident individuals
are free to acquire and hold immovable property, equity shares, units
of mutual funds, venture capital funds, unrated debt securities,
gifts and donations, promissory notes or any other asset outside
India without prior approval of the Reserve Bank of India.
However,
there are a few prohibited transaction as well, such as purchasing of
lottery or sweepstakes, funding margin calls, funding active foreign
exchange trading, funding the initial capitalisation of a company,
speculation (derivatives or / any other financial instrument) and
remittances to Bhutan, Nepal, Mauritius and Pakistan or other
non-cooperative countries.
Out
of so many investment options available, overseas property
investments is becoming one of the favourite asset classes among
investors because of their relatively low volatility and risk. There
are a couple of other reasons for investing in real estate aside from
portfolio diversification.
For
example, people invest in residential properties outside India if
they travel to those countries frequently, have business interests
there or / have kids who are studying abroad. It is also a status
symbol to own property abroad.
The
preference for investment prominently depends on cost of ownership,
taxes, residency rules, economic condition, etc. Dubai, Singapore,
Sri-Lanka, Switzerland, Mauritius, London, New York and Malaysia are
some of the preferred countries where Indians invest.
Now,
given the wide range of investment options available in real estate,
investment in residential property is quite popular, especially,
holiday homes, studio apartments and villas in panoramic locations
like Switzerland, Sri Lanka and Dubai. The current limit of around
US$ 250,000 is sufficient to buy a studio apartment or a small
apartment in most of these countries.
Moreover,
as the rules state, this limit is per individual. One can remit more
amounts per financial year depending on the number of family members.
Purchasing
properties is becoming even more convenient because in most
countries, if one is buying under-construction property, the payment
can be done in many years, similar to India.
However,
some countries such as Cyprus, Hungry, Portugal, Malaysia & Oman
permit investment in their properties only if the investment crosses
a certain limit.
While
investment in outside properties provides better risk-return
trade-off, investors need to be aware of the limitation of global
diversification.
In
mature countries, the risks of delayed project completion, quality,
exit and land title, among others, is relatively low, whereas
emerging economies still face these problems.
Assuring
legality of the titles of properties is also very important. One
should know whether the property is leasehold or a freehold.
For
example, in Dubai, some developers sell leasehold titles, in which
the title is valid for the period stipulated in the lease agreement.
In
countries such as Cyprus, the ownership of many properties is
disputed. Thus, one needs to be aware of local laws and check all the
paperwork personally when purchasing property abroad.
It
is also advisable to obtain the help of agents and legal consultants
to ensure that the total cost and procedures for buying property
abroad are accurate. In a few countries, the formal process of buying
a property is still not very clear.
Therefore,
before entering into any agreement, it is better to seek the
assistance of local consultants about the legalities. The bottom line
is that you should make sure that you understand what you are getting
into.
If
planned right, investment across borders really makes sense for the
purpose of diversification and risk-return trade-off. With the RBI
increasing the limit, one can explore decent options in the
cross-border property market.
ABOUT
SURABHI ARORA..!
Ms.
Surabhi Arora is Associate Director at Colliers International
Ms.
Surabhi Arora joined colliers in 2008, she has an experience of more
than 12 years in the field of Real Estate Research and Corporate
Finance. She is responsible for managing all research related
activities of the company including regional as well as local
publications.
Ms.
Surabhi Arora also works with the Colliers Asia Pacific Research team to
strategize and standardize the key research initiatives on a regional
basis.
Ms. SURABHI ARORA, B.Sc, CFA, MRICS
Associate Director, Colliers International
1st Floor, Technopolis Building,
DLF Golf Course Road, Sector 54,
Gurgaon 122 002, Haryana
Email: Surabhi.Arora@colliers.com
Office: +91 124 456 7580
Mobile: + 91987 175 0808
Web Site: http://www.colliers.com
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