33.40 Should you consider Investing in Real Estate Abroad?
The Real Estate market is currently seeing an up-run.
Property values have increased by a lot in the last 1-2 years. Moreover, this is not just the case in India. It’s happening globally.
So is it smart to start considering Real Estate Abroad?
This could:
- Diversify your Portfolio Geographically
- Bring in better investment opportunities.
Better opportunities? How so?
Let’s take a look at how the Dubai Real Estate Market differ from Indian Markets.
Dubai government has put its entire Real Estate data on a Blockchain. This basically means that:
[1] You can see which Real Estate unit got sold for what EXACT price.
[2] What date. When was the project started/delivered?
[3] You can in-fact check the apartment/villa/townhouse number which got sold at what specific price.
This is a fairly transparent Real Estate market (not saying it does not have problems)
Bayut is one such property-classified real estate listing website in the UAE.
This is what it looks like:
You can check this here:
https://www.bayut.com/property-market-analysis/sale/
There is complete transparency in all listings.
However In India:
[1] People are still figuring out: how much is the tax saving component while doing RE transactions
[2] What is the standard rate for brokerage? (Brokers charge anywhere between 1-10%; jacking up of prices by brokers)
[3] There is no escrow system: you pay the buyer (let's say 10%) before the deal is executed in good faith.
They can take your money and run away.
Is it possible for this type of transparency to come to India?
I don't think it should be difficult to put everything on a blockchain.
But it will not happen anytime in the near future.
On top of that, the Long Term Capital gains tax for Real Estate in India is 20%.
This is a high number.
Short Term Capital Gains for Real Estate are as per your Income Tax Slab.
In countries like UAE,
- STCG in Real Estate is 0
- LTCG in Real Estate is 0
- Operating Income for Real Estate is 0
All of this makes India a hard market to make good Real Estate purchases and returns.
What are some other Markets to consider?
It is much easier to buy a house in Singapore than in India.
Let me explain:
[1] Most of the Real Estate is purchased on loans.
If someone needs to buy a 1 Crore house,
Then you don't really need that 1 Crore to begin with.
What you need is a sensible EMI payment option.
[2] So let's do the math for Indian Citizens in (India) vs Singaporean Citizens in Singapore.
In Singapore:
- Purchase price: let's say 1Mn SGD
- Downpayment (25%): 250K SGD
- Stamp Duty: 25K-30KUSD (the stamp duty is 4%, which too divided between buyers and sellers)
- A Singapore citizen pays roughly 27% of house value upfront
- Home Loan EMI: 4% (you can take a 2-5 year fixed around this) and then keep refinancing
- Rough home loan EMI: US 4200 SGD to buy a 1Mn SGD house or 2.6Lakhs INR
In India:
- Purchase price: let's say 2.56 Crore
- Downpayment (20%)= 51.2 Lakhs
- Stamp Duty (9-10%)= 25.6 Lakhs
- So we are paying roughly 30% of the house value
- Home loan = 2 Crore
- Home loan EMI rate= 8-9%
- Monthly EMI= 3.00 Lakh/Month
Why am I taking 2.56 Crore?
PPP data tells us that 1Mn SGD= 2.56 Crore in India
In India, not only your initial outlay of money is higher (due to high taxation),
We also pay higher EMIs.
The bottom line is:
Opaqueness in Indian markets leads to over-paying on properties.
The reason why people don’t consider investments outside India is a lack of clear information
Source
- Akshat Shrivastava 21/30 days Newsletter.
