Over the last year, the weak pound enabled global investors to get deep discounts on London properties, according to a report released Tuesday by Knight Frank.
Compared to a year ago, a U.S. dollar-dominated buyer would have found London’s prime properties 11.6% cheaper in the first quarter of 2017, while a Ruble-dominated investor would have gotten up to a 28.3% discount on a currency basis alone. Euro-dominated buyers would have gotten a 5.6% discount if they purchase a London property this March compared to March 2016, according to the London-based real estate consultancy.
London's Properties Look Cheaper for Most International Buyers
Knight FrankMeanwhile, the stronger U.S. dollar has lessened foreign buyers’ purchasing power since its continuous appreciation over the last couple of years, according to Knight Frank’s Global Currency Report 2017.
Between June 2014 to January 2016, the U.S. dollar gained 21% against a weighted average of a basket of other major currencies. During the same period of time, non-resident home purchases in the U.S. fell 25%, Knight Frank said, citing data from the National Association of Realtors.
For those from abroad who already own an asset in the U.S., "a strengthening currency could be viewed as an opportunity to enhance returns by selling and repatriating capital," Taimur Khan, senior analyst at Knight Frank, wrote in the report.
More:What to Know About Chinese Buyers in the U.S.
From the perspective of an investor looking to exit the market, British and Turkish property owners abroad have reaped the most significant returns over the last year, as a result of currency fluctuations, the report said.
| Relative Change in Prime Prices in Selected Global Cities | |||||
| Currency of buyer | London | New York | Hong Kong | Sydney | Berlin |
| Australian Dollar | -17.9% | 4.2% | 2.8% | 9.3%* | 5.9% |
| Chinese Yuan | -13.2% | 10.7% | 9.2% | 16.1% | 12.5% |
| Euro | -13.3% | 7.0% | 5.6% | 12.3% | 8.7%* |
| British Pound | -6.4% | 22.5% | 22.5% | 30.2% | 26.1% |
| Russian Ruble | -31.5% | -13.6% | -14.8% | -9.3% | -12.2% |
| Turkish Lira | 5.2% | 24.5% | 22.8% | 30.6% | 26.5% |
| U.S. Dollar | -18.6% | 3.5%* | 2.1%* | -2.2% | 5.1% |
| Source: Knight Frank Research *Local market performance to Q4 2016 excluding currency movements | |||||
For example, Sterling-dominated or Turkish Lira-denominated buyers who bought a prime property in New York in the final quarter of 2015 and sold a year later would have seen a 24% return. A Chinese yuan-dominated buyer would have gained 10.7%.
In deciding whether to sell or buy properties across borders, investors must look beyond just currency factors, though. "While currency shifts can be significant, it is important to keep in mind the fundamentals which underpin property markets," Mr.Khan said. "These can be the most significant drivers of performance."
The other most important factors include economic fundamentals, political and geopolitical risks and Central Bank interventions.
Over the coming year, expansionary fiscal policy in the U.S. is expected to further bolster economic growth. According to the International Monetary Fund, the the U.S. economy is projected to grow 2.3% in 2017, up from 1.6% in 2016.
"Combined with expected interest rate hikes, this may lead to a stronger dollar," Mr. Khan said.