Sumi Rengaraj Co-founder of Ashton Gray Investments
Becoming part of the American dream has been a long-held ambition for foreign nationals throughout the years, a notion highly prevalent among the Indian population. The USA offers a highly stable and evolved market that holds the potential for significant capital growth, rental earnings, and portfolio assortment. While the benefits of investing in the US market are numerous, it comes equipped with its own distinctive set of challenges, which can be averted with specific due diligence on the investors’ part. As part of a booming economy, Indian investors now have renewed interest and passion to invest their capital in the US market, specifically real estate, which holds the potential to garner a significant return on investment (ROI). The appeal of the US real estate market The United States holds a prominent and secure set of legal frameworks, along with transparent property possession laws that empower foreign investors with a sense of safety. As per the National Association of Realtors (NAR), an American real estate trade association, foreign clientele boasts of buying residential real estate with a valuation of an estimated $153.3 billion in 2022—a consequential 8% of the total sales. The dynamic has been prevalent in the US market for a couple of years now, which is evidence of overseas investors’ confidence in the country’s real estate sector. Additionally, the United States provides real estate investors with a manifold of properties in comparison with those available in India. The investors are open to choosing from single-family and multi-family residential units, commercial projects, or unused land for future infrastructure development projects, which allows them to set their priorities and strategies as per their risk tolerance and financial aspirations. Investment methods tailored for Indians While strategies can differ between individual investors, some simple methods can be beneficial for Indian investors, in particular, to gain entry into the US real estate market. This includes direct proprietorships, real estate investment trusts, and even partial ownership systems. Investors who purchase properties of their choice in full use the more conventional method of direct proprietorship, where they can utilize rental earnings to generate a stable income and counterbalance the costs associated with ownership. However, this method often requires the investors to make a considerable investment, which is diminished by investing through real estate investment trusts that hold partial ownership. India Investors can opt to invest in real estate investment trusts through domestic stock exchanges and enjoy significantly high dividend yields that can be rewarding for many. As per the Nareit Trade Association, the equity of these trusts generated an average annual return of 11.74% in the last 30 years until 2023. It can be said that these trusts generate significantly lower returns on investments compared to direct ownership, but they make up for it with benefits like liquidity and diversification. Meanwhile, partial ownership systems are an emerging strategy that enables investors to own a fragment of a real estate property in the US. This method diminishes the requirement for a significant upfront cost and allows individuals a hassle-free investment option. Platforms offering this system are still in the process of growing, and the regulations and fees associated with this system can fluctuate. Key factors to consider for Indian investors Before deciding to enter the US real estate market, Indian investors need to contemplate numerous factors. One of the most important aspects remains the currency volatility since the Indian rupee has a highly volatile nature against the US dollar. A sharp depreciation of the price of the Indian rupee could wipe out the return on investment for them. The investors must have a sound knowledge of currency hedging techniques to diminish this risk. Tax regulations are another major factor to consider for Indian investors before investing in the US real estate market. The tax regimes in India are significantly different from those of the US, and investors should have a proper understanding of the tax implications of both countries for appropriate filings and abstain from double taxation. They must also have proper knowledge of the local market dynamics to make educated decisions or risk losing their capital. It goes without saying that the prospect of significant returns remains the driving factor for Indian investors to invest in the US real estate market. However, the method of investing should give precedence to long-term investing. Assessing the investment opportunity, individual risk tolerance, financial goals, and capacity should be prerequisites to making profitable returns, as thinking only about profits might lead to reckless decisions that result in losses.
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