Get to know the Indian influence on real estate

Get to know the Indian influence on real estatePorush Jhunjhunwala

Dubai's real estate market may have been volatile after the economic downturn, as with many other influential cities around the world, but confidence is returning and the numbers prove it. As many as 4,417 properties worth Dh10.5 billion were purchased by Indians in Dubai in the first half of the year, according to the Dubai Land Department, compared to 2,153 units worth Dh3.7 billion in the first half of 2012. That is nearly triple the value of investments in just two years.

A combination of reasons contributed to the surge in property acquisitions, from the introduction of the Ejari system and Tanmia initiative, to tighter restrictions on who undertakes real estate valuation. Along with these measures, Indian nationals always consider decisive factors such as the quality of life, tax-free environment, education and health-care standards, and weigh them against other markets. In doing so, Dubai seems to be ticking all the boxes.

Indian developers have made a significant impact on Dubai that continues to unfold. Take Sobha Group, one of India's largest and most successful property developers. Its flagship project, the 600-acre Meydan Sobha, features more than 60 per cent open and green space, which makes it one of the lowest density residential developments in the world. Such a master plan will transform the manner in which residential communities are perceived in Dubai, and could very well inspire the way future developments are built.

Pacific Ventures, on the other hand, has made exemplary use of the government's Tanmia initiative that was launched in 2012. Tanmia's goal is to revive construction of projects by selling them to financially strong developers, and this is precisely what Pacific Ventures has done. It took over several stalled projects, including two in Jumeirah Village Circle, and relaunched its own project, the Royal Estate, this time in a joint venture with other developers.

These and others investors, such as the RP Group of Companies, which plans to invest $1.5 billion (Dh5.5 billion) in UAE real estate developments, are helping restore confidence in the market by setting an example with their quality of work, flexible payment plans and carefully selected locations.

The relationship between the UAE and India is not only built on historical roots but also on mutual interests. While the UAE's substantial oil reserves are of vital importance to India's energy needs, India's investments, manpower and manufacturing capabilities largely contribute to the UAE's economic growth.

Such strategic ties, along with the new Bilateral Investment Promotion and Protection Agreement that's currently being finalised, are expected to further enhance two-way trade, which reached a staggering $75.5 billion in 2012-13.

Moreover, the UAE's Indian expat community of around 2.2 million should also not be underestimated. This population will continue to sponsor employees and relatives from home, meaning more business establishments and expansions. Then there is the Indian overseas community, the second largest diaspora around the world, which will always be drawn to Dubai's international position as a tax-free business hub.

Shift in focus

On the other hand, with a new Indian government and prime minister, are we going to see more Indians in the UAE shifting their investment focus back to their home country?

There is strong possibility of this happening, although it is more likely that Indian expats in the UAE will extend their investment to India rather than diverting it altogether.

Two aspects must be considered. Firstly, much stricter measures have been enforced by India's new government to curb foreign exchange flow out of the country and deter Indians from purchasing property abroad.

These include a cutback of the direct investment limit for Indian companies from 400 per cent to 100 per cent of their net worth, and a reduction of the amount of money that Indian residents can send abroad from $200,000 to $75,000 per year. This money has also been banned from being invested in overseas property.

The changes could particularly affect those who were considering UAE property to avoid paying taxes on the sale of their residential assets in India. In other words, it is unlikely the new measures will deter Indian expats generating their income outside of India, as the laws will simply not affect them.

Secondly, the new government is working hard to attract foreign direct investment, for instance, through the Real Estate Investment Trust (REIT) and non-resident external rupee accounts. Perhaps, the bigger threat is the REIT, as once the fund takes off, it will offer a range of incentives, including a possible exemption from long-term capital gains.

However, the UAE is hard to beat in many areas: no personal income tax, no property tax and a 4 per cent property transfer fee compared to India's 7.3 per cent. There are also certain qualities that have consistently attracted many Indians to live, work and retire here, such as the cleanliness, safety and superior standards of education and health care. Another decisive factor is the short distance and connectivity between the two countries.

Investment trend

Indian expats in the UAE, especially those who have established businesses and have long-term plans in the country, are often keen to invest in a property for personal use. As of last year, more than 26,000 Indian companies were registered with the Dubai Chamber of Commerce and Industry alone. In addition, many senior executives, bankers and academicians are looking to retire or at least have a second home in the UAE.

At the same time, a large number of Indian expats, especially those residing in Europe, the US and Australia, have invested heavily in Dubai property because of the lucrative rental yield that ranges from 4-6 per cent per year. And with the World Expo 2020 on the horizon, we expect to see these investments continue.

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Source: Porush Jhunjhunwala, Special to Property Weekly

Porush Jhunjhunwala is Director at Banke International Properties, a boutique real estate brokerage based in Dubai


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