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Indian Real Estate investors buying properties abroad

Indian Real Estate investors buying properties abroad.

When asked what other investment options exist besides stocks and bonds, real estate is typically the first thing that comes to mind for an Indian investor. 

However, the Indian real estate industry has experienced its own share of difficulties during the past decade. In search of higher returns and greater diversity, investors shifted their focus to gold, fixed income, and commodities. 

And yet, have you ever thought about purchasing property in another country? It’s true that lots of Indians are thinking about that now. Increasing interest in overseas property can be attributed to a combination of factors, including higher yields and the accessibility of fractional ownership.

Over the course of the previous year and a half, during both of India’s Covid-19 waves, many Indians have opted to put money towards purchasing vacation houses in other countries. Countries such as the UAE, Turkey, the United States, Canada and the UK are all popular choices among investors.

Here is a simple checklist for you to follow in order to get your real estate investment abroad done correct.

Location

The United Kingdom, the United States, Turkey, Canada, and the United Arab Emirates are just some of the places where Indians have made significant investments. The property investment markets in these nations are well-established, remote management is straightforward, and property rights are well-defined. This makes them a more secure option for investors than either foreign markets or the domestic real estate market.

Location factors like capital appreciation, rental return, ease of purchase and maintenance, and costs like stamp duty on entry and exit are important to think about. Other goals could also be of interest to you. When making your choice, you may want to think about visa by investment, second home, or retirement destination options.

Financing Changes

The Reserve Bank of India has a programme called the Liberalized Remittance Scheme (LRS) that Indian nationals can use to buy property anywhere in the world. In one fiscal year, an individual can send up to $250,000 tax-free through the LRS. Property purchased with a group’s pooled money must be held in the names of all members who have made contributions to the pool. Minor children’s names might likewise be used to send money abroad.

Let’s imagine you and your spouse and two other relatives all sent money back to the United Kingdom and used that money to buy a house there. They have decided that the property must now bear the names of all four people involved.

Foreign Banking

If you plan on investing in real estate in another country, it’s usually a good idea to open a foreign bank account beforehand. A bank account is required for the deposit, the purchase price, the payment of any applicable taxes or fees, and the payment of any costs associated with the handover. 

Having a foreign account is useful for collecting rent and making maintenance payments after the purchase has been made. If you ever decide to sell the home, you’ll need a way to deposit the money and cover the associated costs. Purchasing and managing a home outside of India is a challenging and costly endeavor.

Loans and Funding

Money rules! – When it comes to real estate investments, especially those made in foreign countries, no truer words have been stated. Having the money at your disposal is a huge help. 

There is a general reluctance on the part of financial institutions to issue loans for the acquisition of real estate in other countries. Lenders in India may have trouble recovering collateral if a borrower defaults on payments. So you will have to look into foreign banks to loan you the money.

Taxation

Foreign property purchases, rentals, and leases each have their own set of tax considerations that must be taken into account. Your home nation and the place of purchase will both influence the applicable tax legislation. 

To illustrate, assume you are an Indian citizen who has decided to buy property in another country. The rental income earned from the property in question would thereafter be subject to taxation in India. However, you can get a refund in India for taxes paid abroad (for most countries).

Gains from selling a foreign investment property that has provided considerable returns are subject to taxation in India. Similar rules apply to income, rental, and capital gains from assets owned abroad as they do in India. 

The investments you made qualify for exemption under Code Sections 54 and 54F, as you would expect. On the other hand, there are caveats attached to that as well. Only reinvesting the proceeds in an Indian primary residence will qualify you for the tax breaks. It is true that many countries, including the United Kingdom, offer preferential tax treatment for international investors.

We hope this checklist helps you get started with investing in real estate abroad. 

You can contact us if you need help with your real estate investments in foreign countries.

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