Mansion Global

Looking to Buy Luxury Property in the U.S.? Better Now Than Later

Experts say inaction may harm international investors as the dollar will continue to strengthen

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An eight-bedroom, 11 bathroom home on the market for $21.9 million in Miami Beach, Florida, a popular destination for international buyers.

DOUGLAS ELLIMAN REAL ESTATE
An eight-bedroom, 11 bathroom home on the market for $21.9 million in Miami Beach, Florida, a popular destination for international buyers.
DOUGLAS ELLIMAN REAL ESTATE

International buyers hoping to regain some purchasing power before investing in U.S. property may be waiting in vain. Certain countries whose national currencies have performed the worst against the dollar in the last year are also home to large numbers of buyers of second homes in the U.S., and a reversal of their losing streak seems unlikely—at least for now, say experts. “It’s hard for Mexico or Brazil to reverse the course,” said Win Thin, global head of Emerging Markets/Foreign Exchange at Brown Brothers Harriman in New York. “Rising U.S. rates, low commodity prices: All this works against them.”

The Brazilian real has lost 28% of its value against the U.S. dollar in the last 12 months; the Mexican peso is down 17%. Additionally, the Argentine and Colombian pesos, the South African rand and the Russian ruble have each also experienced double-digit drops over this time period. Russians are big investors in international property markets. According to real estate consultancy Knight Frank, 89% of high-net-worth individuals from Russia are more likely to invest in property abroad than in their homeland, compared to the global rate of 42%. Likewise, 57% of Latin Americans are more likely to purchase properties outside their countries. Those eyeing the U.S. residential market might be better off buying now than later, said Thin. “The dollar will [only] get more expensive.” According to the currency expert, while the U.S. dollar has hit a soft patch recently, it will resume its strengthening this year as rising inflation and a recovery in employment give the Federal Reserve room to go forward with its announced rate hikes in the second half. “The Fed tightening has been delayed, not derailed,” said Thin. He added that international investors with property holdings in the U.S., on the other hand, may want to delay selling in order to increase returns in their local currencies as these lose more ground versus the dollar. Jacques Herman, head of international retail banking and wealth management at HSBC Bank USA, says preparation is key. He recommends international homebuyers who are contemplating entering the U.S. property market assess their particular needs, consider their options and talk to a trusted financial adviser with overseas market experience “before making such a big decision.” “Exchange rate fluctuations can have a dramatic and significant impact on the value of foreign investments and the cost of overseas property,” said Herman. He expects, however, that access to higher-quality undergraduate education for their children will continue to drive affluent buyers, especially from Asia, to invest in U.S. real estate despite the strengthening dollar. Exchange rates aside, luxury property in the U.S. isn’t getting cheaper. According to the Elliman Report by real estate appraisal and consulting firm Miller Samuel Inc., average sales prices of high-end condos in Los Angeles and Miami, popular destinations for international investors, grew by 5% and 14.3% year-over-year, respectively, in the last quarter of 2015. In Aspen, the average price per square foot rose 20.7% to a 12-year record high in the same period. View full listing (pictured top) Write to Andrea López Cruzado at andrea.lopez@dowjones.com