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If you were looking to pick up a house in London, Dubai or Singapore-which are said to be amongst the most popular property destinations for rich Indians looking to buy property abroad; you can't any longer.
The Reserve Bank of India (RBI) announced on Wednesday that no resident will be allowed to buy an immovable property abroad as part of a move to curb foreign exchange outflows.
Buying property was one of the top five reasons that Indians sent money abroad, even ahead of sums spent on meeting travel expenses or medical treatment.
And the trend was on the rise if one looks at monthly central bank data.
The outwards remittances in this segment increased in May 2013 to $7.2 million compared to $5.9 million in the month of May last year, according to the RBI. Outward remittances towards purchase of immovable properties stood at $77.7 million for FY13.
Experts say that investors purchase property abroad to hedge their risk. In other words it is a means of holding assets in a currency other than the rupee. Maintenance of close relatives, investment in equity/debt, gifts and studying abroad are a few items for which outward remittances are used the most.
Karthik Jhaveri, director, Transcend Consulting (India) says, “This is bad news for investors who were looking to diversify their portfolios by investing abroad. People invested in real estate abroad as valuations there are great and also so that they can offset risks arising out of global political and economic uncertainty.“
“It was one of the best ways to build a smart portfolio,” adds Jhaveri.
Ashutosh Limaye, head-Research at Jones Lang LaSalle India says, “While this will affect the investors who were looking at investing in this asset class abroad, we also think this it’s temporary measure and will not stay for too long. This freeze should be lifted in 2 to 3 months time hopefully.”
According to a Kotak Wealth report, expansive tracts of land that can accommodate swimming pools, lawns, courtyards are easily available in many American and European cities due to better city planning and lower population density.
For many ultra High net-worth individuals (UHNIs) owning a home abroad is not purely for investment or luxury purpose alone. It sometimes is a necessity as many HNIs travel extensively and also send their children abroad for study. Hence, having a property abroad would be convenient as their children can save on accommodation and use this property to stay instead.
Some global studies reveal that property prices in Mumbai are now comparable to prices in cities such as Los Angeles, Miami, Rome and so on. Clean environment, better managed public infrastructure, entertainment facilities, good health and sanitation facilities abroad are a few luring factors that play a big role while making the property buying decision abroad.
Currency fluctuation is another important factor that is considered while making the purchase. In recent years, one major attraction for buying property in London has been the depreciation pound against dollar,” say experts.
According to the Kotak wealth report, “Holland Park in London, Burj in Dubai, Belgravia, Nassim Road in Singapore are amongst the most popular global locations for Indian UHNIs to own luxury properties.”
The central bank has also reduced the total amount of money that Indians could send abroad through the Liberalised Remittance Scheme or LRS by over 60 per cent- from $2,00,000 to $75,000.
