India bans overseas property investment
Photo: Add1Sun
The RBI regulations, designed to limit the outflow of foreign exchange at a time when the national currency is struggling, reduced the allowed remittances through the Liberalised Remittance Scheme from $200,000 to $75,000 per year and prevented the use of the money for the “acquisition of immovable property, directly or indirectly, outside India”.
The move will come as a severe blow to Indian buyers keen to pick up a holiday home in London, Dubai or any other popular vacation hotspot. Indeed, Indians have been increasingly active in global property markets in response to the country’s uncertain economy: according to the National Association of Realtors, Indian buyers were the fifth biggest group of non-US investors in America, accounting for more than $3 billion worth of transactions.
In Dubai, they accounted for the largest volume of sales in the first half of 2013, spending more than Dh8 billion in almost 500 sales, according to the Dubai Land Department.
Investors, too, saw opportunity in the higher rental yields available overseas: over 5 per cent in many countries and up to double-digit in certain cities, both higher than the average of 2 per cent available in India, notes First Post.
The announcement comes at a time when non-EU buyers are becoming increasingly important players in the overseas property industry: troubled eurozone markets, from Greece and Cyprus to Portugal, have introduced residency schemes targeting buyers from outside the EU. Offering visa-free travel within the Schengen area, they are designed to encourage investment from India, Russia, China and other nations, giving a much needed boost as they struggle to recover demand. Spain is set to follow suit this autumn with its own residency scheme.
India, though, is now off the wish list of buyers.
“[Indian] individuals who were planning to buy international real estate at attractive valuations and planning for their kids’ education and housing abroad will now see such plans challenged,” Om Ahuja, CEO Residential Services for Jones Lang Lasalle, told First Post.
He added: “Many Indians chose to diversify and increase their exposure to international real estate to ensure steady rental revenue streams for their families abroad, and/or provide accommodation for their own use during their foreign sojourn. The international property focus of such investors is now going to decrease drastically.”
Some have speculated that the restriction will instead see Indians invest in the local housing market. With no option overseas, they may focus on lucrative opportunities available at home. JLL highlights Hyderabad, Bangalore and Chennai as cities with strong investment possibilities.
With rental yields stronger overseas, though, it is unclear that any boost will be evident at all.