Bridging the gap in different countries (US & India)

5 Replies

Hey there fellow investors,
Since i belong to two different markets (US & India), its very very difficult for me ignore some differences the way these markets operates. For starters, 1 to 2% Rent  of property value is pretty normal in US market as compare to 0.25% rent of property value in Indian market.  After some numbers crunching and other factors, this has started to make somewhat sense to me but here is a difference i feel can be a huge opportunity.

The interest rate difference

We all know, US currently is at its all time low interest rate on mortgages and well everything else but even when the market is normal, this is significantly lower than the Indian market. I recently bought a home and my mortgage is at 10.35% Fixed (excellent credit and lowest rate possible). Not to mention, the Private money loans goes anywhere between 20 to 36%. Now, this is not just mortgage rates, the difference can be seen on any type of lending in India. Typical, savings account, money market accounts are offering around 9% rate without a problem with most of the banks. Imagine, how our fellow Americans will feel if they found a way to make 9% on their life savings.

While, i have been trying to wrap my head around all this and find a creative way to make money a good friend of mine told me they did a lot more research into this and are now launching a campaign where they are attractive Indian Americans living in America to invest in India. The expected return is 8% for the Americans with much safer market and no overlooking of properties required and almost null holding cost. This friend of mine is actually launching a road show and expo type of thing in March in 5 US metros with top 50 real estate companies of India promising return to these Americans. I am kinda excited to see how it goes.

My point is, shouldn't there be a way to have Americans invest in a US company with say a guaranteed return of 6% and invest that money in India and make 9% at least with no risk taking? Well, just been thinking and whats better place to discuss money than bigger pockets, please let me know know your opinion and i will keep this thread updated with my research and update on the campaign my friend is going to run in March.

We used to do business in India (unrelated to real estate)  Most of the business was in New Delhi & Bangalore setting up technical facilities, which required acquiring/leasing commercial spaces.  Some questions:  

  • Would the investment in the Indian company be in $ or rupees?  i.e. would they convert the $ to rupees.  I assume the 9% return you refer to is in rupee's.  What would the return be after the exchange rate?
  • The Indian gov't had certain rules that made it almost impossible for foreign companies to take $ out of the country.  Part of the policy to grow the country.  What are the rules for pulling money out of the deals;  i.e. out of the country? 

@Mohit Madaan   - "guaranteed", "no risk" and investments do not mix well :)

Add foreign currency fluctuations and it will be hard to get 9% in my opinion.

Originally posted by @Crystal Smith :

We used to do business in India (unrelated to real estate)  Most of the business was in New Delhi & Bangalore setting up technical facilities, which required acquiring/leasing commercial spaces.  

To start with, i have a 12,000 Sq feet building for lease in Gurgaon area, in the heart of IT industry. Don't hesitate to call me, if you ever need any space on lease, 3000 sq feet each floor.

Some questions:  

  • Would the investment in the Indian company be in $ or rupees?  i.e. would they convert the $ to rupees.  I assume the 9% return you refer to is in rupee's.  What would the return be after the exchange rate?

The way, i assume this will work is. You as an American invest in a US company and that company as a sister firm in India, they convert the USD to INR and invest/lend INR to/in Indian banks. Assuming at the time you transfer funds to USD to INR and INR to USD the exchange rate is same, you only loose less than quarter percentage in currency conversion.

  • The Indian gov't had certain rules that made it almost impossible for foreign companies to take $ out of the country.  Part of the policy to grow the country.  What are the rules for pulling money out of the deals;  i.e. out of the country? 

That is true and thats really why most of the foreign companies have very hard time pulling these deals in India but i hear there is a work around and a Indian company can bring in dollar from foreign company and send it back when they want to.

Originally posted by @Gautam Venkatesan :

@Mohit Madaan  - "guaranteed", "no risk" and investments do not mix well :)

Fair enough, but in a general sense, when we place money in our Savings/Money market account that 1% is called "Guaranteed" return and thats what i was referring to. The normal interest paid out in savings/Money market accounts in India is around 9-10%

Add foreign currency fluctuations and it will be hard to get 9% in my opinion.

The foreign currency fluctuation can go either way, so i am thinking there has to be some sort of stop loss. I will give you an example

Say on Jan 1 2015 investor John invests $1000 in US company. The current exchange rate is $1 = 63.50. So the American company wires Rs 63500 to India company, invest that for a year with 10% return and now the Indian company has Rs 69,850 (more if you compound it quarterly or monthly) under John's account. Now, when its time to send the funds back, Indian company wires Rs 69.850 (Technically $11,00) but could be less or more depending upon the current exchange rate on Jan 1 2016. If we put a cap on stop loss and say every time dollar fluctuates vs inr by more than 2% the investment must be pulled back so for the time money was invested, its at least puling 8%.

Oh and by the way, once you do get a certain size portfolio the currency exchange cost goes away because you hold funds in both countries and try to balance it out instead of exchanging so often.

At the end of the day, i don't have all the peaces of the puzzle together, i am just a fellow investor trying to see if there is a potential. Will keep the thread posted with updates on my research and updates on the event my buddy is holding in march.