The most important reason for investments continues to be capital appreciation, followed by more immediate rental returns that help offset costs of maintaining these properties.
The choice patterns of Indian real estate investors who have diversified into global markets, typically looks at a healthy mix of capital appreciation and a good rental yield. Experts would always encourage investors to think of property investment as a long-term proposition.
The most important reason for investments continues to be capital appreciation, followed by more immediate rental returns that help offset costs of maintaining these properties. After taking into consideration the historic buying behavior and the ever-changing political and financial scenarios across the globe, here is a continent-wise breakdown for residential real estate investment from the Indian investor’s perspective:
1) Pattaya – With a strong rental demand owing to the high influx of tourists, Pattaya continues to attract foreign investors with its low entry prices and high rental returns. Condominiums are the most popular to invest in, and they usually come fully fitted with rental guarantees. With prices starting from as low as INR 35 lakh and rental returns as high as up to 10%, Indian investors are looking at Pattaya as the hotspot for investment.
2) Tokyo - Traditionally, Japan has been the second largest destination of Indian exports (major exports include gems, marine products, iron ore, and cotton yarn). Consequently, Japan attracts significant property investment in the capital, Tokyo. Minato, one of the prime residential areas is a center of business activities where many headquarters are located, apart from foreign corporations and embassies. In addition, there are many foreign residents, which makes this area probably the most favorable destination in Japan. The house prices begin from $1800 per sq ft and the average rental yield ranges from 6% to 8 %. There are also relatively low taxes on rental income.
1) Sydney and Melbourne - Sydney and Melbourne property markets are still forging ahead and providing solid options for investors, particularly those who are getting into the property market for the first time, or for those who are not ready to take the riskier bet. Sydney’s vacancy rate has been stable at ~1.7% since 2012 and has continuously registered strong growth prospects, particularly in inner city areas – though the downside is that prices are still sky high.
A boom in new construction saw Melbourne’s vacancy rate rise to 2.8% around mid-2012, but that has been calmed down now as population growth counters oversupply to bring vacancy back to 1.9%. So, if one wants to make an investment with strong growth prospects that is unlikely to suffer from lack of tenants, it can still be worth investing into markets such as Sydney and Melbourne.
1) Manchester – Termed as one of the UK’s fastest growing cities and best places to live, Manchester provides a huge opportunity for Indian investors. With a predicted growth rate of 10% YOY and average rental yields of 7-8%, coupled with entry prices as low as £ 250K, Manchester is the ‘TOP PICK’ for 2017.
2) London – London continues to be the most popular investment destination with Indians. Whether it is the cultural connect or the safety of the investment and the hitherto strong real estate market, offering stable and consistent growth, this is the first city as a choice for global investments. Currently, the Brexit vote has had a strong economic impact, not as far as property prices are concerned but more owing to the possibility of more bargains to be had in uncertain scenarios. Indian investors are currently looking to cash in on the weakness of sterling.
3) Germany – One of Europe’s strongest economic performers that has registered an increase of an average of 23% in residential property prices. Post Brexit, many investors perceive Germany to be the next financial capital of Europe, and the stable economy adds in to the appeal as an investment hotspot.
The country has led the global recovery from the financial crisis of 2008 in a stellar manner and this is evident in the renewed confidence in the property market. There is a continued appetite for the USA property amongst Indian investors, although the trend shapes away from high-priced, top-end property to more modest real estate.
1) New York – The city is most popular in terms of lifestyle, opportunities and growth. One does not have to be a real estate mogul to own property in New York. One can be a landlord for as less as $500K. Currently areas such as east of Lexington Avenue on Manhattan’s Upper East Side are extremely popular with investors owing to the construction of the Second Avenue Subway. With some of the city’s most desirable boutiques, restaurants, and schools within walking distance, homes that were originally considered to be located too far east by locals will almost certainly appreciate once the project is complete.
2) San Francisco – The most popular city with the millennials, enjoys an extremely high interest from investors owing to lack of space, thus leading to high capital appreciation. Due to high property prices, the rental returns are not very attractive. However, owing to the huge demand of homes and the lack of adequate supply, investors are constantly paying high prices to get a piece of the action. Additionally, investors are thinking of innovative ways to maximise rental returns by using short- term rental platforms such as Air BNB which drive up lease returns.
Other than the above-mentioned property hotspots, Indian investors also consider property investments which are linked to permanent resident and immigration benefits. In conclusion, like with any property investment, it is recommended that one should hire a good broker, choose a reputed developer, understand taxes, laws and regulations and conduct a thorough location analysis before making the final decision.(The writer is Director, International & NRI, Residential Services at Colliers International India)