Worried About Investing With A Falling Pound? Property Outside The EU Is The Answer

After my recent trip to Istanbul, I flew back in the UK only to be greeted by some news on the economy that brought me down to earth quicker that the airline pilot – this time, from my taxi driver.

As if the unseasonably cold weather wasn’t enough, he was also very concerned about Britain losing its triple A rating.

My taxi driver wasn’t an investor himself, however if he’s worried, I am sure that most investors will be thinking the same thing right now.

The knock-on effect of this lack of faith in the UK economy is beginning to show itself with a falling pound and it is also likely to make borrowing even tougher with the money markets showing less confidence in the country than they were.

The UK had managed to avoid the fate of France and the US in being downgraded, however after months of speculation it now finally joins them in sin bin.

On a positive note, the US has managed to recover from its own downgrading with property in Florida growing in double digits in some areas, however the effect on the UK is less certain and credit downgrades didn’t do Spain and Italy any favours.

In any case most investors understand that buoyant property markets need healthy economies underneath them and, unfortunately, there are signs that the sea is getting choppy around the UK once again. It is also the case that if you deal in pounds, your money is not going to stretch as far as it did back in the summer of 2012.

As I said to my taxi driver, I expect the falling pound to have two main impacts on overseas property investors – the first of these will be a weakening of spending power and the second a narrowing of choice.

So if you are thinking of investing your hard-earned pounds in European property at the moment, those great property deals on the Spanish coast may not seem as appealing as they did 12 months ago no matter what your agent tells you.

Not only is the value of property falling in most European countries, so too is each one of your pounds when you come to buy that villa you always promised yourself.

So what’s the answer? Do you decide to invest in property in the UK or overseas to protect your wealth?

The problem with the UK at the moment is that while an upturn in property prices is underway, the medium term outlook is less certain. The recovery in most parts of the UK is weak at best and with an economy that is struggling with weak exports and a falling pound, we will probably see the breaks put on soon with people struggling to cope with rising prices and static incomes.

In my humble opinion, if you are an investor who wants to make a decent return on property investment, it comes down to looking at markets where the pound goes further and where the returns far outweigh the investment you put in.

These two locations in my view are Florida and Istanbul. Despite the pound falling dramatically against the Euro of late – it hasn’t fallen as much against the Turkish Lira and the dollar (when you look at the long term picture).

As I said to my taxi driver, smart investors who enter the Istanbul and Florida property markets early this year stand to gain far more than would be lost on simple currency moves including double-digit capital growth and strong rental returns.

What is your view on how the fall in the pound might have an impact on  property investment in 2013?

Kind regards

Loxley McKenzie
Managing Director