From currency woes to taxation loopholes closing and a clampdown on money flows, the days of Indian investors topping the list of property buyers in the Gulf may soon be over
Indian investors have always had a long-standing love affair with Dubai property. Earlier this year, figures from the Dubai Land Department showed that Indians were once again the top expatriate buyers in the emirate, spending AED5.895bn ($1.6bn) in the first quarter of 2014.
To put this figure into context, Indian investors spent AED8bn in the first half of 2013 and AED9bn in the whole of 2012. It’s also not just the amount that is surging: in second place were British citizens and Pakistanis, who accounted for just AED3.145bn and AED2.410bn, respectively.
But that was all in the first quarter of the year and recent changes in India are making it harder for Indians to invest overseas. Many Gulf-based real estate experts are concerned this might curtail investment into the region and the long-term implications are currently unclear.
The number of Indian nationals buying property in the Gulf is expected to decline after the new government removed an exemption on capital gains tax for those buying property overseas. Indians who sell property and buy another residence within two years, or within three years for newly built homes, are exempt from the 20 percent tax on capital gains — the profit made after taking inflation into account.
However, in releasing its first budget since being voted into office in May, Narendra Modi’s new government has amended a clause in the legislation to only allow the exemption when the subsequent property is bought in India. The change could affect thousands of Indian nationals who have invested in the Gulf.
“The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of Section 54 to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India,” the budget documents said, making it clear that the government wanted to close the loophole and make sure that Indians invested in one place and one place only: India itself.
Narayan Jain, former general-secretary of the All India Federation of Tax Practitioners, told The Telegraph newspaper in Kolkata that the new ruling will hit those who had planned to retire overseas. “Many a time we see old people selling their properties in India and moving abroad. They used to get the tax benefit. Now it will not be available any more,” he said.
The report also stated that the amendments would also dent the ambitions of high net worth individuals who were hoping to take advantage of the cooling price growth in the US and Dubai, a view that is shared by those Arabian Business spoke to locally.
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