Depending on their risk-taking appetite, they should consider investing in real estate abroad as well
Foreign direct investment (FDI) is critical for the growth of any economy. Not only does it ensure fund flows, but is also a sign of the potential growth the country has on offer. FDI helps a domestic company expand its business, create more jobs, and results in higher tax collection for the government. The inflow of currency helps maintain a steady balance of foreign exchange with the central bank.
Remittance from expatriates and NRIs, and investments by high net-worth individuals (HNIs) amount to a big chunk of foreign exchange flowing in a given country. Among many asset classes, NRIs/HNIs prefer to invest in real estate in the country of their origin with the intention of either returning back at a later date and settling down. The investment preference of HNIs tilts in favour of a foreign country that promises a higher potential return. Investment in real estate overseas helps investors planning dual citizenship.
Benefits of overseas investment
HNIs should judge their risk appetite before investing in avenues that offer better and value-oriented returns. Investment in real estate overseas offers an opportunity to settle abroad, overseas exposure, higher standard of living, better education opportunities for children, and high-paying job opportunities for the well-skilled workforce.
Investment plan for better ROI
As countries become more connected, it opens up multiple avenues for investors. For instance, NRIs preferred to buy high-end luxury residential apartments and accounted for a high percentage of investments in India, according to the CII-Anarock Real Estate Vision 2025 report. The recent weakening of the Indian rupee has sweetened the offer even further, as HNIs/NRIs now have to pay less money to buy a home in the country than they had to previously. The combination of a substantial drop in property prices, favourable regulatory norms and increased consolidation in the sector has provided an appealing investment opportunity for investors. While investing in the home country does have its own perks in times of crisis, what gets ignored here is the opportunity to get better returns. Properties in foreign countries provide higher returns than properties in the home country.
Where should the NRIs/HNIs invest
While India’s real estate makes a certain case for investment due to low prices, increased transparency and digital progression, the fact that the world is coping with the pandemic is an opportunity in itself.
Governments across the globe have recalibrated their approach towards remobilising the economy and introduced various reforms to ensure adequate liquidity in the system. This has resulted in lower interest rates across the world. In countries like India, the interest rate is near a two-decade low, for US and European countries it is near zero percent level. On the reform front, the Indian government has introduced various reforms such as reduction in stamp duty, additional liquidity support to NDFC and HFCs. Similarly, the British government has also announced stamp duty holiday that spurred the demand for real estate in the UK. The residential real estate market in countries like UK, Cyprus and Grenada has become more lucrative for ultra high net-worth individuals (UHNIs) and NRIs as a result of the increased transparency and ease in investment norms. Furthermore, the German government has implemented a temporary reduction in value-added tax to help the economy during the pandemic. All of these initiatives have brought global prices to an all-time low, creating an opportunity for the well-informed new generation investors.
Considering the current market scenario, investing abroad could potentially generate better revenue when compared to the Indian residential market. Governments across the globe are working overtime to manage and contain the spread of the virus. With vaccination drives in advanced stages in most countries, and a huge part of the vulnerable population vaccinated, the situation is likely to return to normal by the end of the year. An investment plan should be long-term, strategic, and in sync with financial goals.
The author is CEO, Millwood Kane International
DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.