Anuj Puri, Chairman & Country Head, JLL India
Earlier in October, the US National Association of Realtors published a report which stated that buyers from India purchased residential properties in the US estimated at $5.8 billion in value during the one-year period ending March 2014. This investment magnitude represented an approximate growth of 6% over 2013. It went on to state that Indians spent $459,028 (Rs 2.81 crore) on an average to buy properties across cities like Los Angeles, Las Vegas, Chicago, Dallas, and New York.
This is definitely an interesting finding. Indian HNIs who have obtained American citizenship and are settled there have several reasons for investing in properties in the US. Apart from India’s long-standing love affair with America and all things American, many Indians who have become naturalized US citizens have business interests as well as families in major American cities.
Also, investment into the US property market is once again very favourable. After the steep post-Lehman downturn, countless investors had been able to snap up properties in American cities at unbelievably low prices, and these investments are seeing handsome returns now that the US real estate market is reviving.
As for resident Indians, the Reserve Bank of India had earlier drastically curtailed the flight of Indian money by capping outward remittances and rendering investment into foreign properties impossible. It is only recently that the annual investment ceiling for individuals to buy overseas property under the Liberalized Remittances Scheme was increased from $75,000 to $1,25,000.
This enhanced investment limit is a small but important window. For example, a married couple can now together buy a small property in a US suburb if they have the inclination to do so. Previously, real estate as an option was entirely withdrawn from the LRS scheme and the limit purview.
The annual limit of $125,000 – equivalent to Rs. 75 lakhs – broadly means that if a Indian resident wants to buy a house in the US worth $460,000 (the average ticket size of apartments bought by Indians in the US as per the NAR report), he can do so in three or four instalments with a gap of one year between every two instalments.
Since quite a few apartments in the US are currently held by institutional investors who had bought them during crisis from distressed sellers, it is easy for a foreign buyer to make such deals with such institutions rather than with individual US house owners. The NAR report also mentions that of the total worth of apartments bought by Indians, close to 23% had a component of cash, which could either be held by Indians in their US bank accounts. This is particularly applicable to businessmen and exporters. Therefore, it is not necessary for these Indian buyers to bypass the RBI limit on asset purchases for big deals abroad.