What's making affluent Indians bet on US real estate?
A bubble in real estate prices in major Indian cities has led to buyers from other countries who see the recovering US housing market as one of the best places to put their money these days
Oct 03, 2014
Source : The Economic Times
Real Estate


Arun Kumar owns three apartments in New Delhi, where he has carved out a comfortable life as part of India's rapidly expanding middle class. Not long ago, he also became a global landlord, picking up an inexpensive three-bedroom house and a duplex nearly 8,000 miles away, in St. Louis.

For Kumar and other affluent Indians, US real estate is a security blanket. Faced with what some have considered a bubble in real estate prices in major Indian cities and a sometimes jittery Bombay Stock Exchange, they are joining a wave of buyers from other countries who see the recovering US housing market as one of the best places to put their money these days.

The wealthy elite from China, Latin America and elsewhere have bought pieds-a-terre in glassy towers in Manhattan, luxury condos in Miami and homes along the West Coast. Law enforcement investigations have found that some foreign investors are using US real estate holdings, at least in part, to hide cash and other assets from authorities in their home country.

But many less-than-superrich foreign investors just want a safe place to put extra savings, and their investments tend to be much less grandiose than the trophy properties that have drawn most of the attention. And for Indians in particular, who long trusted in gold to protect their wealth, US real estate offers a "very, very attractive destination," said Subir Gokarn, director of research at Brookings India in New Delhi.

Jed Kolko, chief economist at Trulia, an online marketplace for residential real estate, said the most popular property searches for people from India were in and around Silicon Valley, where technology firms heavily recruit from India; in the Boston and Philadelphia areas near universities that have numerous students from India; and in suburban areas of New Jersey and in Queens, where there are established Indian-American communities.

In an echo of the late 1980s, foreign investment in US real estate has taken off again. A survey from the National Association of Realtors estimates that from April 2013 to March of this year, total sales to international clients were about $92.2 billion, a 35 per cent increase over the previous 12 months. The figure includes purchases by recent immigrants.

Foreign buyers now make up 7 per cent of total existing-home sales of $1.2 trillion, according to the survey. Of those, Indians represent 6 per cent of the purchases, spending $5.8 billion, up from $3.9 billion over the same period a year ago and on par with buyers from Britain.

Canadians have long bought US property and still do so in big numbers, with purchases centered for the most part in Arizona, Florida and more recently in Las Vegas. Canada still accounts for the largest share of buyers, but China is the fastest-growing source of clients, according to the Realtors' group.

And Chinese buyers are bigger spenders. Their real estate purchases in the United States nearly doubled from last April to last March, increasing to $22 billion from the previous period. They accounted for nearly a quarter of all international sales in the current period.

"Most people who can come here, they are pretty wealthy," said Grace Tian, a broker with Realty Mark Associates in Philadelphia who often works with Chinese clients.

In contrast, buyers from India are a more eclectic group. These include parents living in India who buy apartments for students attending college, making sure the units have concierge service and an extra bedroom so they can visit for extended periods, several real estate agents said. After the students leave college, the parents often keep the apartment and rent it out.

"It's a good investment in their eyes, and it can be a better deal instead of them paying dorm costs or renting somewhere else," said Michael DiMella, a managing partner with the Charlesgate Realty Group in Boston whose Indian clients have bought near Northeastern University.

At the same time, the riverfront Newport area of Jersey City has emerged as popular with Indian buyers.

On a recent evening, commuters returning home from Manhattan wove between the high-rises, passing advertisements for Jhalak Dikhhla Jaa, an Indian reality dance TV show, and Raaz Specialty Indian Cuisine. A poster in the nearby train station for an Indian news website featured a riff about pani puri, a popular Indian street snack.

A cluster of mothers who had recently arrived from India gathered outside a playground with their toddlers. For now, they were renting apartments with their husbands, but said they hoped to buy condos in the area soon, citing conveniences for young mothers like a grocery store within walking distance, gym and parks, and a fast commute to the city.

Irene Barnaby, a broker with Weichert Realtors in Jersey City, said her Indian clients generally spent about $600,000 to $800,000 on condos. Some buyers pay cash because traditional banks won't give them mortgages without a credit history in the United States. But she has also created relationships with smaller banks that will lend money to her clientele.

"They can get exactly what they want in this area," Barnaby said.

Padmanabhan Palani, president of the condo association board at the 443-unit James Monroe tower, said the area is comfortable for many people just arriving from India or elsewhere in Asia because it resembles the high-rise districts of Mumbai and Hong Kong. Plus, he said, his building is close to the train station.

"In a snowstorm, 100 meters is very important in how far you walk," said Palani, who came to the United States 12 years ago on a work visa for a technology job and is now a permanent resident.

Some US-based brokers are capitalizing on the growing interest from Indians.

Myron Von Raesfeld, a real estate agent in the heart of Silicon Valley, said his firm started working with technology companies in 1999 to offer seminars teaching immigrants with H-1B work visas the intricacies of the US real estate market.

He now offers the seminar at 80 companies, in part to keep ahead of the competition. "Realtors are becoming very astute at this foreign wave," he said.

Indian real estate agents are also getting in on the action. Vikram Somani, owner of Property Hunters in Mumbai, has turned to the US market, noting that title insurance is available and the buying process is far more organized.

Rohit Prakash, president of American Full House in Austin, Texas, is recruiting brokers like Somani to round up Indian clients. His firm, created four years ago, arranges limited liability partnerships helping his clients overcome tax issues and red tape that otherwise would apply to foreign investors.

"There's a sexiness to say I own property in the US, a little bit of bragging rights," Prakash said. "But for them to know how to go about how to do this, they were clueless."

One of his clients is Kumar, who bought his St. Louis properties sight unseen, spending about $100,000 for a three-bedroom single-family home and a two-unit house.

So far the investment hasn't been as good as Kumar had hoped. One of the units sat empty for longer than expected, and a roof had a problem that needed to be fixed.

"I'm hopeful this year it will be better," said Kumar, who is considering buying property in Silicon Valley in the future. "In any case, I was looking at investment in the USA for the long term."

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