On Foreign Shores

Pritam P Hans   Delhi     Print Edition: February 2012

Are you planning to buy a second home? If a heritage home in Goa, which can be worth crores of rupees, is too expensive for you, how about an old villa or cottage with a sprawling garden in a serene village in France, Italy or Spain? Yes, a residential property in these countries can be cheaper than premium apartments in places such as Delhi and Mumbai.

Economic troubles in the US and Europe have led to a sharp fall in property prices there.

"Banks have ended up owning a large number of foreclosed, non-performing assets (especially in the US). These are bad for their books, resulting in a situation where they are offering foreclosed assets at very low prices just to liquidate their non-performing assets," says Ajit Krishnan, partner and leader, real estate and infrastructure, Ernst & Young India.

Economic turmoil is not the only reason property investors are exploring overseas locations.

"Some international places offer themselves as sound investment destinations, irrespective of the overall economic situation. They are reasonably liquid and not volatile," says Anand Narayanan, national director, residential agency, Knight Frank India.

POPULAR DESTINATIONS

Buying properties abroad is not unusual for non-resident Indians. However, many high net worth Indians who travel overseas frequently are now becoming attracted by the potential for price appreciation in other countries.

"Dubai, London, New York and Singapore are the most popular property destinations for Indians. Except Dubai, the other three have given attractive inflation-adjusted returns in the last two years, as well as over a longer time horizon. Exotic resort locations in Thailand, Florida, Mauritius and south of France, too, are in demand along with education destinations such as Sydney and Melbourne. In the eyes of the discerning Indian buyer, they offer better value for money compared with properties in India," says Narayanan.

"It is the holiday home segment which is picking up strong momentum. After the price crash, Spain, Greece and Italy have become attractive for buying a holiday home," says Krishnan.

While Europe has some good options, London is the popular choice of those who can afford it. Though prime location properties there can be very expensive, independent houses in several locations are available for around $300,000, or around Rs 1.5 crore (this is the price of a three-bedroom villa listed on the website of a leading London property brokerage).

In Asia, Singapore and Thailand are attracting Indians due to easy access. Singapore allows foreigners to buy property but with restrictions. If a foreigner wants to own a property with land, he needs clearance from the government. No special approval is needed to buy apartments and condominiums. However, properties there can be as expensive as in Indian metro cities. So, if you are searching for a bargain, you may have to look somewhere else.

You can also explore Thailand, known for tourism and beaches. Property developers there are offering three-bedroom independent houses in Pattaya, a seaside resort city, for around 40 lakh Thai Baht or Rs 68 lakh.

In Bangkok, three-bedroom villas are available for 50 lakh Thai Baht or around Rs 85 lakh (listed on CB Thailand website).

Like Singapore, Thailand does not allow foreigners to own land. A foreign national can own land on lease with a maximum tenure of 30 years that can be extended twice for the same duration. This means if you want to own a villa in Thailand, the land can be yours for just 90 years. The rules are different for foreign companies incorporated in Thailand.

Dubai is another popular destination among Indians. "In West Asia, Dubai is preferred due to accessibility. Distance is a deterrent in case of the US. However, the US is preferred by Indians who have spent some time studying and working there," says Krishnan. Though there is the advantage of proximity to India, properties in Dubai are expensive. A two-bedroom apartment there can cost $400,000 or Rs 2 crore.

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Look for property consultants who can also help with the legal aspects of ownership

ANAND NARAYAN

National Director, Residential Agency, Knight Frank India

If you want to spend your time in idyllic villages, you can find rustic cottages and stone houses in places in France, Italy and Greece. If you want to enjoy the beauty of the Alps, you can explore Switzerland. Prices there can be high but are worth paying for the joy of owning a house overlooking the snow-covered Alps. You can find new or resale chalets (wooden houses or cottages) in Switzerland for $800,000 and above.

If Rs 4 crore for a chalet sounds outrageously expensive, you can take comfort from the fact that they can be rented out for Rs 50,000 per week or more (rental of a two-bedroom self-catered chalet) during the skiing season.

In contrast to Switzerland, you can find cheaper properties in various parts of the US. A quick property hunt can lead you to villas that cost as low as $15,000.

For instance, a three-bedroom villa in Michigan, Detroit, is quoting for $28,000, around Rs 14 lakh. Compare it with the price of a two-bedroom apartment (around Rs 15 lakh for small apartments) in the upcoming areas of the National Capital Region.

Homes in places such as New York are very expensive, though. A studio apartment in Manhattan can cost as much as $150,000 or around Rs 75 lakh.

LEGAL DILIGENCE

Buying a property in foreign countries requires more effort and caution. One has to be mindful of foreign investment laws of India as well as the destination country.

"An Indian can buy a house overseas under the liberalised remittance scheme by making a remittance of up $200,000 per financial year. The Foreign Exchange Management Act also allows an Indian resident to acquire a property outside India by way of gift or inheritance from a person resident outside India," says Krishnan. "In addition, a person resident in India may hold an immovable property outside India acquired when he was not a resident in India (when he may have been working outside India)," he adds.

Performance of luxury homes
"The most important aspect is to look for integrated service providers who offer services both in India and the place where the property you want to buy is located," says Narayanan.

"An international property consultant who offers you the property should also have the capability to give legal structuring advice through specialised partners to ensure you fund the purchase without flouting any Indian law or inheritance laws of the country where the property is located," he adds.

You must also check inheritance and succession rules of the country where you intend to buy the property. You also need to consider taxation and the cost of maintaining the property.

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Your tax liability for overseas property will depend on citizenship and residential status

AJIT KRISHNAN

Partner, Real Estate and Infrastructure, Ernst & Young India

"The tax implications will be determined by the citizenship status and the duration of stay in the foreign country. For instance, take an Indian who buys a property in the US for giving it on rent and restricts the time spent in the US to a cumulative of 30-40 days per year. In such a case, he will quality as a 'resident and ordinarily resident' in India. In such a situation, any income arising from the US property (whether notional or actual) will be taxable in India. This property shall be taxable in the US as well," says Krishnan.

"In such a case, the property owner will have to avail of the India-US Double Taxation Avoidance Agreement. If the owner has a property in India too, one of his property shall be liable for wealth tax as well," Krishnan adds.

Buying properties overseas has its own challenges, more so if the cost of the property that you want to buy is over the annual overseas remittance limit allowed by the Reserve Bank of India.

"The Indian central bank has capped the overseas property investment at $200,000 per person per year. This is a deterrent for overseas investments, as most properties cost more than this," says Krishnan.

Before you get excited about the opportunities that the overseas real estate market offers, keep in mind that several countries require foreign buyers to pay large property transaction fees or taxes.

Singapore, for instance, recently tightened the residential property market for foreigners by requiring them to pay an extra 10% stamp duty on purchases. Consider all the factors to arrive at the actual cost of ownership. If the numbers and prospects of the foreign property market look good, go ahead and seal the deal.

TIPS FOR BUYING PROPERTY OFFSHORE
  • Visit the place a few times, both when it looks the best and during the off-season.
  • Don't go by the quoted price; bargain hard, especially if it is a new property.
  • Get a list of all fees and charges associated with a property transaction.
  • Hire an international property brokerage firm that is present in your home country as well as where you want to buy the property.
  • Consult an independent advisor who can guide you through the legal aspects of property ownership in the destination country and ensure a smooth transaction.
  • Try to time your property purchase when the foreign currency exchange rates are in your favour.
  • Check whether you will be eligible to visit your foreign home as frequently as you want (visa, residential status, etc)

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