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Zeroing in on a second home, abroad

The global downturn has brought down prices abroad; they are lower than rates in many Indian cities. Here’s a look at the best locations and how one can invest there.

Print Edition: October 16, 2008

In a globalised economic system, no country can escape the general drift of the market. The slump in real estate is not confined to India or the US. Other markets such as Australia, South-east Asia, West Asia and Europe are also affected. The only difference is the degree of the decline. In some markets such as Malaysia and Dubai, while real estate prices have slumped, opportunities have emerged for buyers.

If you have always dreamed of a holiday home overlooking a beach in Mauritius or a farm in Australia or even a villa in Spain, the current scenario may enable you to realise it.

Adding to the attractiveness of some of these locations are the measures these countries are taking to attract foreign investors. While Dubai has allowed freehold property purchase by foreigners, entitling them to full ownership and resale rights, Mauritius allows property owners work permits and Malaysia gives a 10-year visa without working rights. Singapore has a property free zone for foreigners. “The majority of Indian buyers in Dubai are expats who have established themselves in the UAE and are either looking for a home for their families or for long-term investments,” says Peter Riddoch, CEO, DAMAC Properties, a Dubaibased developer.

But though the RBI has allowed Indian residents to buy property abroad, this is not a market for everyone. Only if you are frequently travelling abroad and have sufficient surplus cash should you venture into overseas real estate.

Also, figure out what is the purpose of the investment. Do you intend to use the property or are you going to be an absentee landlord? “Indians are buying property abroad for very specific reasons. For example, there are lots of Indian students in Australia, so Indians would like to invest in property there for their children,” says Poonam Mahtani of Colliers International. You should know the risks and the terms clearly because it is not easy to quickly get out of an overseas market.

First, gather information on the potential destinations and go through the rules on foreign ownership. “Indians intending to invest in property abroad must be aware of certain investment and liability risks they expose themselves to,” says Anuj Puri of Jones Lang Lasalle Meghraj.

While one has to account for the risks that are inherent to realty assets and to the changing interest rates, there is also an additional foreign exchange risk. If the rupee appreciates, your returns are lower. Also, keep in mind that ownership does not necessarily mean visa or work rights.

Buying property overseas is a complicated procedure and requires expert guidance. True, foreign real estate markets are more stable and organised than those in India. But the foreigner tag adds complexity to the deal. Thankfully, in many established markets, foreigners have access to property management services. Once you have decided on a specific location, hire a licensed real estate agent who can guide you through the process. This small expense can help you avoid costly mistakes.

Under the RBI’s remittance scheme, a resident Indian can invest up to $200,000 a year abroad. If this sounds small, several members of a family can pool their limits to create a larger corpus. You need to pay the entire sum upfront because few lenders are willing to give loans to foreigners.

Some banks like HSBC give loans against a property in India, which can be transferred to an account in designated countries for buying a property there. The interest rates on such loans are between 14% and 16%.

The income from the property— whether as rental or as capital gains when it is sold—will be subject to the tax laws of the country where you are investing. But if India has not signed a double tax avoidance treaty with that country, it will also be taxed in India. So be sure of what you are getting into before you jump in.

Narinder Kapur and Ira Mehra
Narinder Kapur and Ira Mehra
Singapore

Narinder Kapur and Ira Mehra own a 5,825 sq ft penthouse in Thomson 800 area of Singapore.

They bought the apartment for S$3 million in 2006. “The decision was a mix of investment and personal living,” says Kapur. “There is a pent up demand for bigger apartments and the location is close to the city but less crowded.”

[1 SGD = Rs 32.38]
15%price appreciation in the past two years

Why Invest: Commercial hub, cosmopolitan culture, significant expat population

What to look for

Restrictions:
• Approval from Land Authority needed for buying land, landed property or flats in buildings of less than 6 storeys
• Foreigners not allowed to purchase Housing Board flats

Taxes / Additional charges:
• Stamp Duty payable on purchase
• Property tax every year on 10% of assessed value

Visit / Stay: Social visit visa valid for 5 weeks, allows multiple entries and 30 days stay per visit

For more information: www.iras.gov.sg, www.sla.gov.sg

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