Five pointers for Indians purchasing overseas property

Retail and HNI investors in India are starting to follow suit as more and more of them look for opportunities in international commercial real estate.

 

Here are five crucial pointers to assist Indian investors flourish in the worldwide commercial real estate market and make wise judgements. (Reuters)

Institutional investors have been diversifying their portfolios internationally for a while now, and an increasing number of retail and HNI investors in India are doing the same, looking for possibilities in international commercial real estate. Driven by developed nations’ attractive investment regulations and perceived stability, these investors allocate capital abroad in an attempt to optimise returns and reduce risks.
In this article, we’ll look at five crucial pointers that might help Indian investors flourish in the worldwide commercial real estate market and make wise judgements.

Using Strategy to Manage Market Cycles

It is customary to “buy low and sell high.” We are currently nearing the apex of a cycle of interest rates driven by inflation. Rates have risen to 5% in developed countries like the US and UK, which are renowned for keeping interest rates close to zero. As a result, there are very few opportunities to purchase premium assets at substantial discounts in some sectors of global commercial real estate assets.
Since many investors view REITs as essentially debt instruments, their exposure to them has decreased as interest rates have risen. This is untrue, though, since real estate is the underlying asset class and is a hybrid product with growth potential similar to equities and debt-like cash flows.

As a result, blue-chip REITs are currently offered at a 25–30% discount to the value of their underlying assets. According to CBRE’s analysis, historically, REITs have outperformed the market, delivering 24% annual returns in the three years that follow a 20% or more discount to asset value (as opposed to just 10.5% for stocks).

Current values present a good entry point for astute investors. If investors choose their preferred investing themes and strategically allocate their wealth, they may be able to generate larger returns when interest rates decline.

Determine Profitable Investing Topics

Because of the manageable ticket sizes, Indian investors have always preferred to invest in residential real estate overseas. Remotely administering overseas properties is not without its difficulties, though. Indian investors can choose to invest in specific Global REITs or securities backed by institutional-grade properties in order to obtain exposure to the global real estate market.

Getting expert investing guidance is essential to choosing appropriate capital allocation themes. For example, whereas the office sector has underperformed in the US and the UK, it has flourished in the Middle East and India. Because of shifting economic cycles, certain markets—like warehousing—perform better than the office sector even within the United Kingdom.

Make Use of Currency Dynamics

Purchasing stable currencies from industrialised nations protects against currency devaluation and increases total profits. An investor in the UK earning 5% in pounds would receive a yield comparable to an 8% return in rupees when made in India. This is a significant obstacle for many NRI investors, as their investments in India often underperform despite the relatively greater returns.

On the other hand, investment in economies that are weaker requires larger yield expectations in order to offset currency depreciation.

Recognise regulatory frameworks

Investors should familiarise themselves with RBI guidelines regarding fund remittance from India prior to making any overseas investments. A person may remit up to $250,000 annually under the Liberalised Remittance Scheme (LRS) for investments and overseas costs.

Furthermore, one needs to account for factors like the Tax Collected at Source (TCS) on foreign investments and costs that exceed Rs. 7 lakh per year. The TCS rate has raised from 5% to 20% as of October 1, 2023. Taxes on worldwide income, such as rent and capital gains, are levied on Indian citizens.

Examine Local Laws

Purchasing real estate abroad involves navigating a variety of laws, licences, and payment procedures. Due to the unique practices of each market, a local team of consultants is required for smooth acquisitions and investments free from litigation, particularly when it comes to direct investments.

Finding trustworthy brokers, solicitors and tax advisors in other countries is difficult, though. Certain platforms that offer selected institutional-grade assets make it easier for Indian investors to access overseas commercial real estate through fractional ownership opportunities.

In conclusion, Indian investors have a plethora of new investment options thanks to international commercial real estate. Indian investors can now take advantage of stronger entry points into the real estate investment cycle, superior asset quality, and currency appreciation thanks to the increased access to new foreign markets. Indian retail and HNI investors can profitably leverage the potential of international commercial real estate, diversifying their holdings and ensuring long-term financial growth, with careful preparation and expert advice.