Kunal Mehra, Designated Partner, Optamac

Do you want to invest in real estate abroad, but have no clue how to go about it? Optamac will come to your rescue! From identifying a property to managing legal issues, the company will take care of all your needs. In a freewheeling interaction with The Dollar Business, Kunal Mehra, Designated Partner shares Optamac’s business model and future plans with a small tip to turn the dollar in your favour.

Interview by Vanita Peter D’souza | The Dollar Business

TDB: Of late, real estate investment opportunities abroad seems to have become a real and exciting investment alternative for Indians. How are you tapping the market?

Kunal Mehra (KM): There has never been a better time for Indians to invest in international property markets. Due to the downturn in the Indian real estate market, investors are looking at new avenues to invest. The relaxation of rules, which permit Indian residents to invest in real estate overseas, have created an investment climate favourable for international real estate.

Indians are increasingly looking for good realty investment opportunities abroad. As per a recent wealth report, India’s high net worth individuals are heavily investing in real estate in other countries; and their numbers have grown by 166% in the last 10 years. Almost 50% of all India’s UHNI & HNI (Ultra High Net-worth Individuals and High Net-worth Individuals) have foreign real estate in their portfolios, which is amongst the highest in the world.

The broad profile of Indians who are looking to buy properties abroad would include business owners, professional property investors, mid-to-top level company management and high net-worth individuals. A large component of prospective buyers includes people whose children study or wish to study in these countries. At Optamac, our qualified, experienced and insightful team is equipped to offer investors a comprehensive range of portfolio services that range from identifying promising real estate options, securing offshore finance, assisting with asset management and executing exit options for anyone – from a first-time buyer to a seasoned investor.  

TDB: How are foreign markets different from Indian market?

KM: The real estate market in many countries offer very lucrative investment prospects with various offers and options. Apart from that, Indians buying property abroad can often avail citizenship in the host country. This factor is of considerable aspirational value to many. The aspiration factor aside, property in more and more locations within Indian metros has become expensive. Moreover, interest rates for bank loans are already proving to be a stumbling block.

In comparison, an Indian wishing to buy a property in New York, London or Sydney, can avail considerably lower interest rates from local banks in those countries. Also, many foreign property markets are more transparent than ours; so investors can get ‘clean’ deals. Investment in property abroad makes sense for those who are employed or have business interests in the country of choice. Indians who have settled or are planning to settle abroad permanently, are of course, prime candidates. These clients are already investing abroad, but they don’t have a professional company to manage their portfolio, and that is where Optamac steps in.

Abroad, the rental yield is about 6-6.5%, while in India it’s just 2-3%. The cost of finance is also favourable in these countries, which gives you a positive spread to enhance your return by leveraging your investments, something we can only dream of in India. So, it would not be prudent to look at these as just real estate investments where you gain only from the expected capital appreciation.

TDB: Have you seen any significant growth under the Liberalised Remittance Scheme (LRS)?

KM: The LRS was recently given a boost by the Reserve Bank of India (RBI). The news of increase in the limit from $125,000 to $250,000 came in February 2015. However, the notification came out in May. The total outflow between April and October 2015 was around $2.04 billion – the highest ever. RBI has been very kind to liberalise the LRS. They have not only increased the remittance limit under LRS, but have also relaxed some rules under LRS and ODI (Overseas Direct Investments). As foreign exchange reserves of the country are increasing, we hope that the government will continue its efforts of liberalising such policies. With the opening up of LRS and relaxation of real estate norms, we are seeing a rise in the number of clients who are interested in investing in countries like USA, UK and Dubai. In Dubai’s case, as it’s a very volatile market, we aren’t advising our clients to shift money there.

TDB: This business encourages outward flow of foreign exchange. Do you expect inward remittances, at par with total outflow, as well over time?

KM: Today, you hear everyone speaking of outward remittances. The fundamental idea is that it is an investment opportunity which was earlier curbed at a lower value. Once the government opened this gate, customers have started evaluating and exploring these options. Whenever a new opportunity opens up in the market, a lot of people tend to move in that direction. Hence, we see outward remittances, but this stabilises with time.

Moreover, at some point in time, people who have invested abroad might want to remit the money back. Similarly, NRIs wherever they may be based out of, want to invest in a few properties back in India – isn’t that inward remittance? So, I would say that outward remittances are exposed a lot, but it’s a situational matter, and will stabilise with time.

TDB: So, are you just focussing on developed markets? Or, are there opportunities in emerging markets as well?

KM: Not really, we are currently focusing on developed countries, and that too only English speaking markets – Australia, UK, Canada and USA. Cyprus, however, is one emerging market we are tapping as of now. There are also some other regions in Europe which we have slowly started exploring.

TDB: What is your strategy for client acquisition?

KM: Optamac is focusing on direct customer acquisition and through referral partner network. Direct customer acquisition is handled by our trained in-house wealth managers. Referral partners are expert investment consultants in fields like shares, mutual funds and insurance sales. Optamac is very stringent on the quality of partners due to the nature of our product.

TDB: Apart from real estate investments, what are other verticals you are looking at or are planning to?

KM: There were a lot of enquires about immigration along with the investments, which prompted us to venture into another vertical – Immigration Services. This vertical is being handled by our partner, Nishant Makkar. A lot of these investments that lead to immigration might not be in real estate. Countries like USA, UK and Cyprus allow you to make a certain investment to get a permanent residency. Other than offering leveraged real estate investments and immigration, we also offer fixed guaranteed investments in USA and UK, which is handled by our other partner, Kapil Singhal.

We have plans to look into Real Estate Investment Trusts (REITs). This will take some time, but we would like to help the non-HNI, the middle income group who have aspirations to invest abroad but are restricted by their budget.

TDB: How do you hedge against currency fluctuations in these kinds of  investments?

KM: That’s exactly what we are helping Indian clients do, hedge against the stronger currencies by creating income or assets denominated in those stronger currencies. We are expecting the dollar to be on our side. If we were investing in rupees, then we would be more concerned. But for certain clients, who have the apprehension of the rupee appreciating over the dollar in next 5-7 years, it could be negated by the very fact that in the forward contract market, US dollar is trading at a premium.

TDB: Given that in some pockets in India the real estate market is still exciting, why should Indians invest abroad?

KM: There are a couple of reasons why we suggest investing abroad. Firstly, in India, people invest in real estate only for capital appreciation. So, what we get here is rental yield of 2% and our cost of fund is 10-12%; the lowest home loan would cost you 9.5%. There is huge gap between the yield and cost of capital. Secondly, you hope that capital return is so much that it covers the high cost of funds and inflation. Are we comfortable enough to say that our capital growth in India would be 15-20% every year? On the other hand, in foreign markets, mortgage is available at around 4% and rental yields are at a positive rate of 6%. Apart from that, you are on the positive side of hedging. We push the three primary drivers of growth – capital appreciation, currency appreciation and rental income.