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How To Buy And Finance a Property Outside India As the domestic economy hits a slowdown, Indian investors will continue the momentum of investments in other more lucrative and mature markets

By Nish Bhatt

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Great fortunes are built through real estate investments. International real estate investments have long been a profitable option for many Indian investors due to multiple reasons, compared with investments in Indian markets, the returns on capital and rental yields are higher if invested in incorrect foreign locations. As the domestic economy hits a slowdown, Indian investors will continue the momentum of investments in other more lucrative and mature markets such as London and Cyprus that offer higher returns.

Are properties abroad a profitable investment?

London's property market has always been one of the strongest globally, and while millions of buyers have taken advantage of it and made big gains, it is a safe investment for Indians as well. Making a property investment in London can be very beneficial for an individual. London can secure stability for one's money and it is a stress-free investment. Another aspect of the UK's capital city is the fact that there are good growth prospects from a mature market and the rental market is solidly reliable.

Besides, if the property's price rises then the investor will benefit due to the increase in value especially when you decide to sell it in the future. Investment in London property can be a worthwhile venture if you are careful with the areas in which you invest. It is always good to be planning and some of the areas in London, for instance, Earls Court and Croydon, are expected to see growth in 2020. It makes them good choices if you want to find the best places to invest in London, allowing for an increase in capital growth along with rental returns.

Advantage of investments in Cyprus

The jewel of Mediterranean Cyprus offers great opportunities; it has a lot to offer to Indian investors; as Cyprus is an island with a diminishing coastline where developments are mostly sold out, any investment in real estate will have scarcity value, which will appreciate with time. Other benefits include an attractive and transparent tax regime which includes one of the lowest corporate tax rates in the EU at only 12.5 per cent. Besides, investing in Cyprus comes with additional benefits. It allows you to obtain citizenship or a permanent residency which will, therefore, help you gain access in various markets due to its geostrategic position and the full entrance to the European markets. Last, the national wealth of Cyprus is rising again, with GDP inching higher and higher for past five years.

Who is buying and where?

There is a broad spectrum of Indians who are searching for properties to invest, such as industrialists, working professionals, NRIs and HNIs. However, most of the Indian investors come from a business and industrial background. The investors are usually looking for places where they can combine lifestyle, safety, security, and education, among others, this justifies the high numbers of Indian investors globally. In London, a drop in property prices and a weaker pound recently attracted a lot of international buyers. Besides London, other parts of Europe, such as Germany and Cyprus have become hotspots where investors are benefiting considerably, and other popular locations include New Jersey and Atlanta in the US, with Toronto in Canada. London has always been of high interest with Indian investors and it continues to be one of their preferred destinations. Reports suggest that more than 3,000 Indian families own some of London's most expensive catchment lands, such as Mayfair, Hyde Park, Chelsea, and Baker Street.

One of the most important reasons why rich Indian parents invest in London, and this helped to the increase in demand for homes in the city, is because they are keen on educating their children at leading British schools. Cyprus is also painting a pretty picture, according to in-Cyprus and Eurostat, Cyprus issued a total of 20,999 first residence permits to non-EU citizens in 2018, where 3784 out of these, were issued to Indian nationals (18 per cent of the total number). This happens because most of the Indians investing abroad want to secure a second home, and they are given this opportunity by obtaining the Permanent Residency and Citizenship Schemes in Cyprus. Citizenship gives the person the right to stay, find a job, study and invest in all 28 EU member states.

Precautions while investing abroad

Indians who are interested in investing abroad should always keep in mind that any investments come with risks. For instance, in some countries, land laws for investment in immovable properties can lack transparency and be quite complicated. Also, since the Reserve Bank of India has tightened the reporting norms for the Liberalised Remittance Scheme (LRS), an individual can only transfer up to $250,000 (for each family member) abroad in a year. However, with the remittance limit applicable individually, buying properties jointly with a family member can widen your budget and options. Investors should always be aware of exchange rates, and it would be beneficial for them to get advice from specialists before they make an investment. Another point that should be mentioned is that people who invest abroad should make sure that the property has a clear title deed, and it is able to be sold. The property should be legally cleaned and devoid of any litigations or dispute. Real estate investment should form part of your long-term strategy. Proper advice on all matters discussed will help you navigate to a highly profitable venture.

Cost & interest rates

Cyprus offers very low interest rates from as little as 1.99 per cent for your first home. Being a full member of the EU, Cyprus benefits from European banking rules and as such the benchmark EU base rate which is negative, so cost of borrowing is really low. Further purchases attract borrowing costs of around 3.5 per cent per annum which is still about 1/3rd of the rate charged in India.

To give you an example borrowing 490,000 euro (approx. INR 4 crore) at 1.99 per cent will cost you €2,090 per month (approx. INR 1.7 lakh per month) which if borrowed in India at 9 per cent would cost you double at €4,200 per month (INR 3.4 lakh per month approx.).

This difference of almost 100 per cent paid via monthly EMI is of great significance if investing in Cyprus real estate. The banks in Cyprus will however expect you to contribute 30-35 per cent of the purchase price from your own pocket. Incidentally the INR 4 crore will buy you almost 120 per cent more square feet in Cyprus as opposed to say, Mumbai.

Another thing to keep in mind is the income tax implication on the returns and investments you make in the global market. Each country's tax rules vary, so before buying, the investor will need to get to grips with them. The buyer might be liable for paying the stamp duty (or equivalent to the country) or VAT—or both. When you buy property in another country, you are required to abide by the tax laws of both India and the country where you are purchasing the property.

Buying property requires proper due diligence to ensure that you are buying a clear title and the bank requirements are fully satisfied. You should consult an expert to make sure you buying experience is not fraught with difficulties.

Nish Bhatt

Founder and CEO, Millwood Kane


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