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Wednesday, September 30, 2009

UAE: A lucrative bet for Indian buyers


Source: The Economic Times Manoj and Sindhu — a young couple who moved to the Silicon Valley with IT jobs — had been living in the same house for over a decade. But when the Land as investment economic downturn hit, they were the lucky few whose jobs were not at stake. With property values dipping across the US, it was time to seek the new house of their choice closer to their workplace. Today they are proud owners of a two-storied house on the edge of a forest in Oakland at walking distance from Sindhu’s workplace.

This is a trend that is seen even among resident Indians in the global markets. Take the CEO of a leading IT company who was another person who did not have to fear about a job cut. With business interest already in the US, he used the surplus income to purchase a home in the Bay Area in California.

But it’s just not destinations in the US that are drawing Indians by the dozen. Singapore, the UK, Hong Kong and Dubai are some of the other places that are likely to draw interest among Indian buyers, according to Ajit Krishnan, partner, real estate practice, Ernst & Young.
“These are also markets which have seen a fair degree of correction in prices over the last 12 months. Markets such as Singapore and Hong Kong are mature and have a vibrant leasing possibility and hence tend to offer good return on investment, apart from the fact that usually they have limited stock available, owing to their limitation for expansion,” he says.

Currently, individuals are allowed to remit up to $200,000 per annum towards investments, including immovable properties. Individuals thus mostly prefer to buy towards the end of the financial year around March/April so that they can remit a larger amount and also invest in joint owned properties.

Explains Ashok Kumar, principal & managing director of CresaPartners, an international corporate real estate firm, “There are two reasons for the spurt in Indians buying property abroad. Firstly the global markets witnessed a far greater downturn that any Indian market. If our fall was about 15-20%, global markets fell by about 60-70% in value. Then the recent government norm of allowing Indians to spend up to $200,000 to purchase a property abroad helped. If the husband and wife both hold senior management positions they are able to purchase a good property for $200,000-400,000. Prime spots such as the Miami beaches in Florida and areas in Phoenix have been investment hotspots.” Kumar also finds suburban London and Manchester hotspots for Indians in the downturn.
Banks such as Citibank and Standard Chartered have been facilitating the deals. However, says Arun Goel, CEO of DHFL Venture Capital, “I don’t really see a rush for properties abroad. That was largely during the peak times in Dubai. Today the buyers are those who have business interests abroad and are seeking a buy into the markets when they are at their lowest levels. They are not speculators and intend to stay invested for a long time, say for at least 3-5 years when the markets are expected to rise again.”

Developers, however, have a different take. Rajeev Rai, vice-president, corporate, Assotech says the tremors of US sub-prime crisis were felt Land as investment across the European and Mid-East Asian realty markets, where property prices fell by 25% to 50%.

"The crash in the US, the UK, UAE, Singapore as well as Mauritius real estate markets offered affluent Indians an opportunity to own a second or subsequent home abroad. Dubai and Singapore are seen as business hubs, whereas UK and the US are favoured as education centres. Generally, only small apartments are preferred. Apartments are available in the range of $1,00,000 to $1 million in these countries, which is more or less equivalent to prices in India," says Rai.
Agrees Vijay Jindal, CMD, SVP Group who says that buying property abroad is suddenly making sense to affluent Indians.

"Countries such as Singapore, Mauritius, Thailand and Malaysia” where prices have dropped up to 30-40% in recent months” are attracting Indian investors. Prices have also crashed considerably in the US, the UK and in the Middle East, mainly in Dubai. Many Indians are seeing this as an opportunity to buy property in Dubai as buying property here attracts no government tax and even if your property is put on rent, the income is completely tax-free."

But it is best to study all aspects before you decide on buying a property in these markets. This includes studying currency fluctuations of international markets together with the home market.
Adds Krishnan of E&Y, "It is necessary to balance the risk profile of investing in immovable properties in international jurisdictions with potential foreign currency fluctuations, as the returns in rupee terms are likely to be impacted significantly, depending on how the rupee or the jurisdictional currency moves against the dollar. This becomes a greater risk given that the investment in immovable properties would usually be of long-term nature.

Therefore, if the investment is a pure play investment and has no advantages for either personal or business use, the return in the functional currency would need to be greater than the risk adjusted returns in India for such investment to make financial sense. While such opportunities may be hard to find, the last 12 months of global economic meltdown has probably resulted in such opportunities becoming more available.

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