 "One Hyde Park luxury complex in central London")
For those who invest in real estate, the sector seems to have lost its charm. Rentals have crashed to below 2 per cent of capital value and appreciation is negligible. Worse, nobody knows the outlook for the future. How long will it take to clear the huge inventory? Will the concessions announced in the Budget by Finance Minister Arun Jaitley rekindle interest in the sector? In this scenario, faraway London offers a good investment option with rental income of up to 6 per cent and annual capital appreciation of 18-20 per cent.
From Amrish Puri feeding pigeons in Dilwaale Dulhaniya Le Jaayenge to Shah Rukh Khan singing songs in Jab Tak Hai Jaan, London is a particular favourite with Indians. Nearly 25 per cent of all non-British homeowners in London are Indians. Though Southall (for Punjabis), Wembley (Gujaratis) and Tooting (Tamils) have been traditional desi strongholds, Indians can now be found in almost every neighbourhood, tony or otherwise. With its great mix of history and modernity, and the fact that it is more accepting of outsiders, London is the most sought-after city in the world. The demand for property far exceeds the supply, and that is what is driving up prices. Property rates in the rest of England are more or less flat.
"Most Indians began investing in the London property market after the crash in global property prices in 2009," says Sunil Mishra, CEO of Karvy Private Wealth. This was helped by the Reserve Bank of India's liberalised remittance scheme that allowed an individual to invest up to $200,000 in a financial year in various instruments, including real estate, abroad. "There was an increase in the last three to four years in the number of high-net-worth individuals who came to us with real estate queries for London," says Mishra. Last year, the Reserve Bank of India reduced the limit under the scheme to $125,000. But this is still enough to get you started. It means that a family of four can cumulatively invest up to $500,000 per year.
According to Charles Peerless, director for Mayfair and Marylebone at Winkworth, current rates in Central London can go as high as £4,000 per sq foot, while rates in North London districts like Harrow and Wembley are around £500 per sq foot. This means that a one-bedroom, 500 sq feet apartment in Mayfair would cost around £1.25 million, while a similar one in Wembley would come for around £300,000.
Mishra adds that like most countries abroad, interest rates on home loans and mortgages are lower in the United Kingdom compared to India. "Those who want to buy expensive properties in London usually use their remittance limit to make the down-payment and take a low-interest home loan for the remaining amount," Mishra says. According to Peerless, the rate of interest on home loan can be up to 6 per cent in London. Currently, the lowest rate of interest on home loans in India is around 10.5 per cent.
A substantial part of the interest cost gets defrayed by the rental income. Peerless suggests that rentals can vary between 2.5 and 5.5 per cent of the capital value of the home, depending on the location of the property. "While one would only get around 2.5 per cent rentals in Marylebone and Mayfair, this can go up to 5.5 per cent in districts like Harrow," he adds. But some like Mishra say that, typically, Indian investors don't rent out their properties. For one, the legal nuances of giving out your property on rent are tiresome. "Two, buying property in London is a quasi-emotional decision. Indians buy homes so that when their children go to London to study, so that they won't have to live in hostel," says Mishra. Top colleges like London School of Economics, University College London and Kings College London are all located in central London's Bloomsbury district.
