Exploring real estate investment opportunities abroad? Know key risks here

From a financial standpoint, the allure of diversifying, tax benefits, capital appreciation, and enjoying favourable rental yields serves as compelling incentive for investment in real estate

In an era of expanding global opportunities, an increasing number of Indians are turning their gaze towards real estate investments abroad. The motivations behind this trend are diverse, ranging from the pursuit of resident permits or citizenship to portfolio diversification, seeking optimal returns on investments, establishing businesses, securing residences for themselves or their children studying overseas, exploring career prospects, and leveraging tax benefits, among others.

At the forefront of these opportunities lie the enticing prospect of ‘golden visas’ – or permanent residency, which various countries offer, providing an array of benefits including residence permits, access to healthcare and education facilities, tax advantages, and a high quality of life.

 

As real estate prices soar not just in India but across numerous other nations, the escalating cost alone should not serve as the sole impetus for contemplating property purchases beyond Indian borders. Exploring these domestic opportunities is not only less risky but also more accessible, presenting a viable alternative for investors seeking to optimise their investment strategies.

By delving into the diverse investment avenues available within India's burgeoning real estate landscape, investors can capitalise on the potential for growth and stability while mitigating the complexities and uncertainties associated with international investments.

Indeed, the decision to acquire property abroad warrants consideration only if one seeks to diversify their asset portfolio or is drawn to the allure of residency permits and the attendant benefits they entail. 

Nevertheless, amidst these considerations, it is crucial to recognise the plethora of investment opportunities that abound within India itself, offering avenues for capital appreciation and rental income.

From a financial standpoint, the allure of diversifying investment portfolios, reaping tax benefits, capital appreciation, and enjoying favourable rental yields serves as compelling incentives for investing in international real estate ventures.

For some, these investments represent more than just financial assets; they embody alternate vacation homes, permanent residences, or idyllic retirement destinations where individuals can relish a high quality of life alongside health benefits. 

Others view purchasing properties in proximity to their children's educational institutions abroad as pivotal in laying the groundwork for residency through investment programs.

Key risks

Nevertheless, it is imperative to grasp the inherent risks associated with venturing into foreign real estate markets.

A comprehensive understanding of local laws and regulations, economic dynamics, political stability, and tax frameworks both in the investor's home country and the target investment destination is paramount. The stability of political and economic landscapes holds particular significance, as unforeseen events, conflicts, or legislative changes can exert adverse effects on investments.

The spectrum of risks encompasses legal, tax-related, governmental, compliance, currency fluctuations, violations of laws, indebtedness, susceptibility to scams, among others. Navigating through the intricate web of legal and financial frameworks demands meticulous attention to detail and expert guidance.

Engaging reliable and proficient advisors is instrumental in facilitating a seamless and legitimate investment process. Language barriers, limited market knowledge, risks of double taxation, and non-compliance with local laws and regulations pose potential pitfalls, underscoring the necessity for cautious manoeuvring and reliance on expert counsel to mitigate risks effectively.

Due diligence

For Indian investors eyeing international real estate opportunities, conducting thorough due diligence emerges as a linchpin for success. This diligence encompasses a multifaceted approach, encompassing legal, financial, and market assessments to gauge the viability and potential pitfalls of prospective investments.

By leveraging expertise from specialists and adopting a prudent approach, investors can navigate the complexities of foreign real estate markets with confidence, safeguarding their interests and maximizing the prospects of favourable outcomes.

In conclusion, the burgeoning trend of Indian investments in international real estate underscores the allure of global opportunities and the quest for diversification, stability, and growth. While the prospects are promising, they are accompanied by a myriad of risks that necessitate careful consideration and strategic planning.

By heeding the advice of seasoned professionals, conducting comprehensive due diligence, and remaining vigilant, investors can unlock the vast potential of international real estate markets while safeguarding against potential pitfalls.

Ultimately, informed decision-making and prudent risk management are integral to realising the full spectrum of benefits that international real estate investments offer to Indian investors.

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Reshmi Panicker is Executive Director - Land Services and Residential at Knight Frank India. Views are personal.