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Here’s what RBI just allowed you to do

The RBI's raising of the limit for individuals looking to invest abroad to Rs 42 lakh per year has opened up great opportunities for property buyers, report Gurbir Singh and Suman Layak.

business Updated: Apr 26, 2007 03:51 IST
Gurbir Singh & Suman Layak
Gurbir Singh & Suman Layak

The Reserve Bank of India's (RBI's) raising of the limit for individuals looking to invest abroad to $100,000 (Rs 42 lakh) per year has opened up great opportunities for property buyers.

Here's what an internet brochure has on offer: a two-storeyed furnished house on Khwang Road, halfway between Phuket and Chalong, with four air-conditioned bedrooms, three bathrooms, a living room, dining room, gym and kitchen as well as an entertainment room and two garages. That's available for only 6.8 million baht, ie, Rs 88.3 lakh ($211,500). Some bargaining could bring the price down to $200,000, which a husband-wife team could remit in a year.

In contrast, a 600 sq ft, one-bedroom flat at Juhu would cost more.

"If an investor chooses to take a loan on EMIs, he could buy something even more expensive as the remittances would be under $100,000 a year," said Pranay Vakil, chairman of broking house Knight Frank India.

Indians may focus on Singapore and the United Arab Emirates as they normally buy through family networks, said Shashi Kumar, chief investment officer at the IndiaReits Fund. "Developers from London and Singapore may, in fact, hold road shows here for their projects," Kumar added.

So, what can an individual with the $100,000 remittance limit - or a husband-wife team's limit of $200,000 - buy? In Atlanta, USA, a two-bedroom apartment in a central area would cost around $170,000 (Rs 71.4 lakh). Properties in Dubai and Singapore's East Coast Parkway would be within reach but most of London, Hong Kong and New York would be unaffordable, said Vakil. A two-bedroom apartment in Enfield, an outer suburb of London, would cost $350,000 (Rs 1.47 crore).

What about opportunities for stock investors? Nipun Mehta, co-founder and CEO of Unitis Tower Wealth Advisors, said: "Earlier, the limit of $50,000 (Rs 21 lakh) was hardly used as Indian markets were providing the best returns anywhere in the world." Strict know-your-client norms for brokers would also make it difficult for Indians to invest in stocks or mutual funds in the developed world, he added.

There is an opportunity, though, in private equity investment, Mehta said. Last year a European bank created a fund for private equity investment and allowed Indians to contribute. This fund was used to invest in several private equity funds. "With the Indian markets not looking great at this point, such funds or funds-of-funds will be popular for Indians who have $100,000 to invest," Mehta said.

First Published: Apr 26, 2007 02:01 IST