To rein in the depreciating Indian rupee and curb forex outflows, the RBI has banned resident Indians from buying real estate overseas. So it's a sudden change of plans for those who have been looking at this option. In June this year global property consultant Knight Frank told Prime Property that queries for overseas properties had gone up from four in a month in 2011 to nearly 20 a month this year.
Earlier in the year Knight Frank also said Indians are now among the top 10 buyers of residential real estate in Central London. On an average purchase by an Indian in prime London was for around 1.5 million pounds. Indians in the last three years have been the fourth largest property buyers in Singapore.
Knight Frank had observed a trend of Indians buying their third home overseas usually close to where their children study. Higher rental yields has been another attraction, for instance the London market commands an average 4-5 percent yield as against the average 1.8-2 percent in India.
Post the RBI directive, Jones Lang LaSalle said, “Currently, the variety of options available on the international property market offer very attractive rental yields and valuations, making the proposition of investing in property abroad a potentially lucrative one. However, the new restrictions will put a dampener on the sentiment of Indian investors who were considering this route."
Another international property consultant DTZ said, "The ban is currently a good news for Indian real estate as the capital which otherwise would have been diverted abroad will now stay in the country. In recent times, there has been a surge in Indians buying properties in countries such as Dubai, Singapore, Malaysia and suburbs of London. These investors interested in real estate will now be restricted to consider properties only within the country. This is likely to give some boost to the real estate demand in the country especially in the premium and luxury segment as these investors are majorly high net worth individuals (HNIs)."
There is however one big grey area in that RBI directive. The RBI announcement does not make it clear as to what will happen to the partially completed overseas property transactions i.e. where part payment for the property has already been made. In a typical overseas real estate transaction, a token amount of USD 1800-2000 is paid on signing a reservation form, and nearly 15-20 percent of the property value shortly thereafter on exchange of contracts. RBI cutting the annual dollar remittance from USD 200,000 to USD 75,000 will also hit all of these transactions.
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