Global commercial real estate: Key Considerations for Overseas Investment – Investing Abroad News

By Rahul Jain

Institutional investors have long diversified their investments globally, and now, a growing number of Indian retail and HNI investors are following suit, eyeing opportunities in global commercial real estate. Fuelled by the perceived stability and favourable investment regulations in developed markets, these investors seek to maximize returns and minimize risks by allocating capital internationally.

Here, we will explore five essential tips to help Indian investors make informed decisions and succeed in the world of global commercial real estate.

Strategically Navigate Market Cycles

Traditional wisdom advises to “buy low and sell high” Currently, we find ourselves approaching the peak of an inflation-driven interest rate cycle. Developed nations like the US and UK, known for maintaining near-zero interest rates, have seen rates climb as high as 5%. Consequently, certain categories of global commercial real estate assets offer a rare opportunity to enter high quality assets at steep discounts.

Many investors typically value REITs as purely debt products and hence have reduced exposure to them as the interest rates have gone up. However, this is a misconception as the underlying asset class is real estate, which is a hybrid product with debt-like cash flows and equity-like potential for growth.

This has led to a situation where blue-chip REITs are now available at a 25-30% discount to their underlying asset value. As per CBRE’s report, historically, REITs have ended up significantly outperforming the market providing 24% per annum returns in the following 3 years post 20%+ discount to asset value (compared to just 10.5% for equities).

For savvy investors, current valuations offer an opportune entry point. By tactically allocating capital and selecting favoured investment themes, investors can potentially yield higher returns as interest rates come down.

Identify Lucrative Investment Themes

Traditionally, Indian investors favoured residential real estate investments abroad due to manageable ticket sizes. However, managing foreign properties remotely poses some challenges. To gain international real estate exposure, Indian investors can opt for investment in select Global REITs or securities backed by institutional-grade properties.

Professional investment advice is crucial in identifying suitable themes for capital allocation. For instance, while the office sector in western countries like the UK and US has underperformed, it has thrived in regions like the Middle East and India. Even within the UK, different segments like warehousing outperform the office market due to varying economic cycles.

Leverage Currency Dynamics

Investing in stable currencies of developed economies offers a hedge against depreciation, contributing to overall returns. For instance, an 8% return in rupee terms in India equates to a similar yield achieved by a UK investor earning 5% in pounds. For many NRI investors, this is a big challenge as their Indian investments tend to underperform despite the comparatively higher returns.

Conversely, investing in weaker economies demands higher yield expectations to counter currency depreciation.

Understand Regulatory Frameworks

Before venturing into international investments, investors must grasp RBI guidelines on fund remittance from India. The Liberalised Remittance Scheme (LRS) permits annual remittances of up to $250,000 per individual for investments and foreign expenses.

Additionally, considerations such as the Tax Collected at Source (TCS) on foreign expenses/investments exceeding Rs. 7 lakh annually must be factored in, as the TCS rate has increased significantly from 5% to 20% since October 1, 2023. Indian residents are subject to taxation on global proceeds, including rent and capital gains.

Navigate Local Statutes

Investing in foreign real estate requires navigating diverse regulations, permits, and payment processes. Each market has its own practices, necessitating a local team of consultants for seamless acquisitions and litigation-free investments, especially when direct investments are concerned.

However, sourcing reputable brokers, lawyers, and tax consultants in foreign jurisdictions poses challenges. There are platforms that facilitate Indian investors’ access to foreign commercial real estate through fractional ownership opportunities, offering curated institutional-grade assets.

In conclusion, global commercial real estate provides a wealth of new investment opportunities for Indian investors. The expanding access to new international markets allows Indian investors to benefit from currency appreciation, superior asset quality, and a much better entry point in the real estate investment cycle. With careful planning and professional guidance, Indian retail and HNI investors can successfully tap into the potential of global commercial real estate, enhancing their portfolios and securing long-term financial growth.

(Author is VP – Investments, South at Property Share India’s first and largest commercial property investment platform)