Weak Currency Danger For Property Investors

Falling Currency Property Investment It may not seem like much, but a fall in the value of a currency, even if it only knocks a few cents or pennies off, can be worrying when it is multiplied by the hundreds of thousands needed to invest in property.

Of course property investors are unlikely to be too concerned about currency fluctuations when investing at home. The situation can change when it comes to investing in overseas property, however.

You will probably have noticed that currency movements are becoming more volatile in the early months of 2013 as most of the world’s major economies look to give a bit of a boost to their economies by devaluing their currencies to increase exports.

This results in the regular news reports we hear of either a falling pound, dollar or Euro around this time of the year. At the moment we have a falling pound and a strong Euro, however that can all change very quickly, which is a little disconcerting for a property investor looking to invest abroad.

For example, how can you be sure you are getting value for money if the currency you invest with is Sterling? The Bank of England needs to stimulate the UK economy so it looks like Mr Sterling will be on a downward path until its main export markets in Europe think that British products are a good price.

Then we have Mr Euro struggling to keep things together as rumours that another rate cut may be on the way. Mr Euro – being far more erratic than Mr Sterling over the years – can sometimes have a surprise or two up his sleeve for the unwary investor.

It was only six months ago, that a seasoned property investor I know was confidently predicting €1.40 to the pound.  Yet since then the Euro has gone in the opposite direction and risen to the point where £1 is only worth around €1.15.

The not so big secret is that whatever happens with currencies in the short term, property as an asset only moves in one direction in the long term and that is up.

In the USA, Mr Dollar backed by a strengthening economy is currently toning up and gradually getting stronger than it was against Mr Euro and Mr Pound. However it is still weak after falling nearly 10% against the Euro back in 2011.

Rather than assume a weak currency is bad news, the main thing to watch out for as a property investor is the long term trend. Often a currency can appear weak before a rally and in emerging markets like Turkey we can see a gradual strengthening or rise in value against other major currencies.

In this case the value of your investment in property in Turkey will rise on the strength of local currency alone.

On the other hand, investing in the Eurozone can mean that with a stronger currency you will be able to find overseas property at a real bargain price. However, if it is a country like Spain and the Euro happens to be on an upward trend while your currency value is falling, then those low property prices on the Spanish coast may not seem quite such a bargain as they were.

So on balance it is better to invest in countries with a rising currency backed by a strong economy where property prices are comparatively low compared to your home country. That way you can take advantage of capital appreciation and benefit while the value of currency is rising against that of your home country.

How have currency fluctuations influenced your investment decisions? Please leave your comments below:

Kind regards
Brett Tudor

Property Expert

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Categories: Property Invest / Spain Property / Turkey Property


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