28 Sep 2023
What motivates Indians to seek investment opportunities in global real estate? Are the investment prospects within India insufficient?
Diversification, potential for higher returns, and exposure to developed market currencies are some of the key drivers for Indians investing in global real estate.
Developed economies typically exhibit robust currency stability, which, in turn, contributes to an augmented return on the properties, owing to the sustained appreciation of foreign currencies against the Indian rupee. To illustrate, over the past five years, the INR has experienced a depreciation of 3.3% against the GBP and 3.7% against the USD. Hence, in India, if an investor is receiving 8% returns in rupee terms, an investor yield of sub-5% in pound terms can enable investors to earn 8% yield in rupee terms.
Additionally, commercial real estate in developed markets offers advantages such as a strong tenant profile with longer lock-in periods, ensuring a steady rental income. They have reliable infrastructure and well-established regulations, reducing investment risks, and increasing potential returns. For example, in the UK, a 10-year lock-in period is a market practice as compared to a three-year lock-in period in India, giving investors a higher certainty of cash flow.
In line with the same, Property Share has acquired three warehouses in the UK and aims to increase its portfolio value to approximately £100 million within the next 12 to 18 months. In 2022, the company ventured into the warehousing sector in the UK market and has made a cumulative investment of £20 million thus far.
When it comes to buying properties abroad, is it the commercial or residential units that Indians are more interested in?
Over the last two decades, Indians have invested significantly in countries like UK, Netherlands, Germany, USA, Australia, and UAE. The preferred investment has been in residential properties because buying a home in a foreign country allows an opportunity to migrate as many countries offer a residency-by-investment program. It allows the investor to get a PR in the country at a much faster pace than the conventional methods along with a place to reside.
Nonetheless, over the last few years, a large number of NRIs have been investing in commercial real estate in different countries to diversify their portfolio and generate passive income. Platforms like Property Share allow these investors to access newer investment avenues in smaller tickets globally.
Which are the most favoured nations for Indians to buy real estate abroad?
In my opinion, the UK stands out globally as an opportunity to acquire real estate, especially in the warehousing sector. The country has strong regulations and a heavy presence of institutional investors.
However, the recent interest rate hikes in the UK, as well as globally, have caused significant redemption pressures from the investors of these funds, which has presented a unique opportunity to invest in institutional Grade A warehouses available at extremely attractive prices.
To illustrate, over the last 2 years, prime warehousing yields in the UK have risen from 3.25% in August 2021 to 4.75% today implying that purchase prices of Grade A warehouses have fallen by as high as 30%. In addition, the boom in the e-commerce and 3PL sector coupled with a very favorable supply-demand market dynamics in most regions, makes UK warehousing an attractive option.
What factors influence the choice of markets for international property investment?
Typically, international property investors consider factors like economic stability, growth potential, political environment, legal regulations, market trends, and currency stability when selecting investment markets. Cultural appeal, infrastructure, and quality of life also play a role in their decisions.
Towards the same, Property Share takes several strategic measures to alleviate investment risks, ensuring our investors’ interests are safeguarded. Initial steps include meticulous filtration on potential properties, factoring in elements such as location, market trends, and growth prospects to select assets with stability and promise.
This is followed by a thorough due diligence where we consult with Tier-I law firms and technical consultants to ensure that the property has no underlying title or structural issues.
In addition, we prioritize transparent and consistent communication to keep investors abreast of their investments’ performance throughout the investment cycle.
What practical challenges are associated with investing in real estate abroad?
Investing in real estate abroad presents several practical challenges, including legal and regulatory complexities, cultural differences, currency fluctuations, as well as distance management. Navigating these challenges requires thorough research and due diligence on local laws, property ownership regulations as well as taxation and engaging local legal experts as well as real estate professionals can provide valuable insights.
Commercial Real Estate (CRE) investment platforms can facilitate international real estate investment by offering a digital marketplace to connect investors with global property opportunities. Platforms like Property Share provide detailed property information, financial projections, and risk assessments, allowing investors to make informed decisions. We handle legal and administrative processes, easing the burden of cross-border transactions. Additionally, diversified investment options can help mitigate risks associated with specific markets.
Nonetheless, investors should exercise caution, diversify their portfolios across different markets, and understand the platform’s terms. Regular monitoring and maintaining open communication with platform representatives can help address challenges and ensure a smoother experience when investing in real estate abroad.
What potential returns can Indian investors anticipate when investing in global real estate?
Potential returns for Indian investors in global real estate vary based on factors like location, asset quality and market conditions. Historically, well-researched investments in stable markets have given IRRs ranging between 15-20%. However, conducting thorough research, seeking local expertise, and diversifying investments are important in order to achieve favorable returns.
In line with providing Indian investors an opportunity to invest abroad, Property Share has been working to replicate its existing business model in the UK. As part of that, we have already completed the acquisition of three assets.
What are the key features of Property Share’s platform that make it attractive for Indians looking to invest in UK properties?
We offer CRE (office, retail and warehousing) investment opportunities across India and the UK. Investors can choose whichever asset they want to invest in to build a diversified portfolio. We choose the properties we list on our platform after rigorous due diligence and base our decisions on various attributes that would help reduce potential risks like longer tenant lock-ins, MNC tenants, building quality, rental yield, LEED certification, etc. Additionally, we ensure consistent IRRs in the range of 15-20% and rental yields of 8-10%.
As an online investment platform, Property Share prioritizes the security of its investors’ personal and financial information. Towards the same, every investor is assigned a unique virtual account through which they can send/receive their payments, with instant receipt generation and ease of tracking. Our investor dashboard allows investors to access features like rental calculation, payouts, distribution frequency, portfolio status, etc. at the click of a button.
The author is the Head of Investments (South) at Property Share, India’s first and largest commercial property investment platform.
The article has also been published on Financialexpress.com on 29th August, 2023