Real estate has been an asset class that remains instrumental to long-term wealth creations for investors globally. The Indian real estate market has primarily concentrated on office, residential, and retail assets.
However, lifestyles are changing due to globalisation, rising disposable incomes, and increased digital adoption, giving people more options to invest in real estate outside of India.
According to the Wealth Report 2022, India has the youngest population of High Net Worth Individuals (HNIs) in the Asia-Pacific region, with 28-year-olds included in the billionaires club. These HNIs have now shifted their focus to global commercial real estate to get risk-adjusted returns and build a diversified portfolio.
Why has international commercial real estate become a popular asset class for HNIs?
High net-worth individuals with a net worth greater than ₹25 crore are looking to diversify their investment portfolio. To supplement their portfolios in India, these individuals are increasingly looking at global real estate opportunities. Some of the key factors for this shift are:
RBI’s Liberalised Remittance Scheme
Indian citizens can conduct individual foreign exchange transactions with a fair amount of ease owing to the Reserve Bank of India's Liberalised Remittance Scheme (also known as LRS).
Under the scheme, Indian citizens are free to send up to $2,50,000 in any permissible current or capital account transaction or a combination of both per financial year. Due to this liberalisation, India reported $19.6 billion in outbound remittances under LRS in 2021–22, an increase of $7 billion from the prior year
HNIs are therefore showing a strong interest in investing in properties abroad through the LRS scheme. In addition, real estate costs in countries like the US and UK have gone down due to the recent slowdown in their respective economies.
Furthermore, in contrast to India, the majority of international cities have open real estate laws. In the 12 months leading up to June 2019, the number of Indian homebuyers in upscale London markets increased by 11% year over year. Indians are now also looking to invest in real estate in cities like New Jersey and Atlanta in the US, Toronto in Canada, Melbourne and Sydney in Australia, and so forth.
High yield returns
For HNIs who are looking for a profitable alternative with low risk and who want to maximise returns and generate a fixed income, the commercial asset class is a good choice. Affluent Indians are today investing in Grade A offices, logistics facilities, IT parks, and REITs domestically and abroad. It is due to the likelihood of strong capital appreciation and rental yield. Compared to the current rental yield from residential property (1.5-3.5%), commercial property can offer an average rental yield of 8–11% in India.
Safe diversifying option
Affluent Indian Investors tend to diversify in foreign properties as a hedge against domestic economic and market risk. A hedge against unfavourable domestic events, investments in the international market through mutual funds, exchange-traded funds, direct equity, and real estate property help to diversify. Additionally, when selling or liquidating their investments, investors gain from the rupee's depreciation.
For a more promising future abroad
Many Indians today are thinking about investing in real estate in major foreign cities to relocate there. Emigration schemes have gained more attention - in an increasingly globalised world, cross country migration is becoming increasingly common enabling many HNIs with the luxury to move their bases abroad.
How can one easily invest in commercial real estate abroad?
Several tech-enabled fractional ownership platforms exist today that make it simpler and more transparent to access a curated collection of rent-paying commercial real estate assets offshore. These companies use technology, algorithms, big data analytics, and machine learning to help define disruptive solutions aimed at democratising the real estate investments landscape for investors. Today using such platforms, retail investors are able to access curated selection of institutional grade opportunities at significantly reduced investment minimums!
High net worth individuals should build a diversified global portfolio of assets comprising domestic and foreign real estate. This enables them to hedge their risk whilst accessing the best opportunities across geographies. The real estate fractionalization platforms are now enabling this for a larger investor base as the hefty investment amounts previously required have been reduced considerably to ‘bite-size’.
In the coming days, investing offshore is going to be very popular because of how the post-Covid world economies are changing and the Indian government's introduction of enabling laws and regulation. If you are determined to purchase a foreign property, consider both the advantages and disadvantages before making a decision.
Aryaman Vir is the Founder & CEO of MYRE Capital