London, Dubai, NY: How to buy a property abroad

In 2020-21, $62.75 million was remitted under LRS for purchase of immovable properties.

Also read: Why consider investing abroad at all?

Children’s education, better lifestyle

While economic conditions, job and business prospects, better lifestyle and family presence in other countries are some of the traditional reasons, improved medical facilities and better infrastructure have been added to the list of reasons, especially after the coronavirus outbreak.

According to Akash Puri, director, International Business, India Sotheby's International Realty, there are financial as well as other reasons behind Indians buying property abroad.

If we talk about financial reasons, “diversification of investment portfolio across asset classes and geographies, currency hedge, investing in matured markets with less volatility and higher returns (10-12 percent return per year, i.e., capital appreciation of around 5 percent and above, rental yield, roughly 3 percent and above currency movement) are some of the reasons,” said Puri.

On the other hand, “ease of living, residency, quality of life, infrastructure, stable economy and medical facilities are the other reasons which attract Indians to other countries”, added Puri.

Besides that, many Indians send their children abroad for studies and eventually consider buying a property.

“The number of Indians choosing to study at UK universities has jumped massively, from 52,545 in in 2019-2020 to 84,555 in 20-21, and looks set to soar, following a memorandum of understanding between the UK and India to recognise each other’s higher education qualifications,” said Stuart Leslie, International Sales and Marketing Director, Barratt London, a real-estate consultant.

“With so many of the world’s finest universities being in and around London, and with the UK student accommodation being notoriously expensive and of poor quality, for many families, it is a shrewd financial move to purchase a property, especially if their children are likely to study overseas,” added Leslie.

In the last few years, securing residency in another country, by way of investment, also added more power to the trend of Indians buying home abroad, as it’s one of the easiest ways of investment.

“More than 6 lakh Indians have given up their citizenship in the last five years, according to data by the ministry of external affairs, and 40 percent of them are in the US,” mentioned Puri.

According to Puri, COVID-19 was another factor. “It encouraged ultra-high net worth individuals to apply for citizenship by Investment (CBI) or an alternate passport to provide them with global mobility and a hedge to geopolitical risks. “The pandemic has allowed many UHNIs to reflect on their life choices of ‘where is home’ and ‘what is freedom of movement,” adds Puri.

Also read: Top 10 best residence-by-investment cities for Business Index

Dubai hot favourite now

At present, Dubai is a hot favourite with the new golden visa rules. If you buy property worth 2 million AED, you get a residency visa for 10 years for your family. Thanks to such a policy, Dubai recorded real-estate transactions worth $2 billion in the week ending September 2, Puri said.

Like Dubai, there are many other countries that provide citizenship and other benefits even for a lesser amount of investments.

“Caribbean countries, such as Antigua and Barbuda and St Kitts and Nevis, are a quick way to get an alternate passport. Some of them provide a passport within three months of application, with a donation of $100,000,” added Puri.

The Portugal Golden Residence Permit Program is also very popular among Indians.

Preferred destinations
“There are both cultural and financial reasons why so many Indian home buyers prefer the UK. With most people in India speaking a good level of English, and a very similar legal system when it comes to house purchases, there is a feeling that the UK is relatively uncomplicated and the country can be a home-away-from-home,” said Leslie.

The British pound is fairly weak at the moment, and with the rupee being pegged to the dollar, UK property offers a good buying opportunity for overseas investors. In fact, buyers from India will get 20 percent better value for their money than two years before, thanks to the currency fluctuations, with prices per square foot nearly identical in London and Mumbai,” said Leslie.

Even from an investment point of view, London can be considered. “There is a huge rental demand in London. Even capital growth in the London property market has tended to be steady and relatively certain. The increase in value of London properties over the last 30 years has compounded 9 percent each year, putting most investment options to shame. And that’s without any profit on rentals,” said Leslie.

Rental demand, another attraction

According to Puri, one can also look at New York and Miami, if the intention is to make an investment.

“Manhattan’s average rental price is currently at its peak, and, therefore, it is a great buy to let investment opportunities there. Similarly, Miami has grabbed the attention of the finance and start-up world during and post the pandemic. Several Wall Street bankers and fund managers have relocated to Miami. The city’s list of new corporate residents includes Blackstone, Starwood Capital, Goldman Sachs, Virtu Financial, and Elliott Management.

The rush of real estate is reflected in the prices. If you invest in a service apartment at Miami, it can give up to 7 percent net rental yields,” said Puri

Remittance limits

Even if you have enough money to invest or buy properties in your city of choice, you can only invest up to a limit every year.

“Under LRS, an individual can remit $250,000 in a financial year as investment in property in a foreign country,” said Deepak Jain, chief executive, TaxManager.in, a tax e-Filing and Compliance Management Portal.

However, this limit is only for individuals and you can make remittance in the name of family members to enhance the amount.

But in case the members of a family pool their remittance to purchase a property, that property should be in the name of all the members. There is no restriction on the type of property you buy with the help of remittance from India. It can be residential or commercial or a plot of land.

Tax implications and compliances

“Any income earned from property abroad attracts tax in India as well as the country in which it is situated. These tax regulations, along with stamp duty, estate duty and property tax should be followed by the assessee,” said Jain.

However, when it comes to taxation, “there is no different treatment for rental income and capital gains income from foreign properties while reporting in India,” said Sandeep Sehgal, Partner- Tax, AKM Global, a tax and consulting firm.

The rental income will be subject to tax at the slab rates. A deduction of 30 percent for repair and maintenance and a separate deduction for payment of interest on any loan for such property is allowed usually. Similarly, capital gain from property which is older than two years will be considered long-term and subject to tax at 20 percent.

Otherwise, it shall be short-term gains and will be subject to tax at the slab rate, explained Sehgal.

However, taxpayers need to be mindful of the tax credit for taxes paid in the country where the property is located. While reporting in India, they should arrange the proof of tax payment and file a Form 67, along with the tax return for claiming the tax credit and avoid double taxation, mentioned Sehgal.

Irrespective of whether there is any income or not from the foreign investment, you still need to disclose the property details in the income-tax return form, while filing your ITR in India.