With the strong performance of the dollar, it would seem logical that currency fluctuations would be a driving force in international luxury property purchase decision. But that’s not necessarily the case.
“If you think about it mathematically and logically, currency fluctuations should impact investment decisions,” said Julia Hoagland, a Compass broker who heads the Modern Luxury Living Partnership team. “But at the end of the day, it doesn’t necessarily come into play too much.”
While currencies are always moving up and down, when people are investing outside their home country and purchasing properties of significant value, “exchange rates are not determinative and don’t drive the market,” said economist and doctorate holder Hugh Kelly, principal of Hugh Kelly Real Estate Economics and a clinical professor at New York University’s Schack Institute of Real Estate.
They do, however, have “some importance,” he continued, and how much depends almost solely on the buyer’s motivation for making the purchase.
More:Non-European Buyers Drive Recovery in Spain’s Luxury Housing Market
If the buyer is only in it for the investment, currency fluctuations might matter a lot. Because a European buyer can expect to pay about 18 million euros for a $20 million property today instead of the 12 million euros that purchase may have called for in 2012, they might decide to hold off for the time being, or “pause right now,” as Jonathan Miller, President and CEO of Miller Samuel Real Estate Appraisers, said. But even with the pause, those buyers are still in the market, he continued. “The sense of urgency just isn’t there.”
This can go the other way, too, Mr. Miller added, and a “currency play” is in fact happening right now in the U.K., where the value of the pound has dropped significantly since last week’s Brexit vote. Today, foreign buyers can snap up a London property for significantly less than they could just weeks ago, while British investors looking to purchase an international property are probably out of the game for the time being.
If the investor is what Dr. Kelly calls a utility buyer — someone who plans on using the property and reaping all of the benefits that come with it, whether that’s access to the Miami nightlife or proximity to Central Park — they’ll worry less about currency fluctuations, because it’s about using the space while holding onto their capital — not getting a big return on it.
And if the investor is motivated by a need to move money out of their home country because of political instability or a failing government, currency fluctuations likely don’t matter at all, said Mark Dotzour, a real estate economist from College Station, Texas, who holds a doctorate.
More:Is Now the Right Time to Invest in U.K. Real Estate?
Even if their home currency is in a nose dive, “that person is probably going to be ready to buy,” he said. “They’re under duress and just trying to get out to avoid a collapsing economy.”
For all of these investors — but specifically the third type — the U.S. is particularly appealing because it’s a “safe harbor,” “where you have an economy that is under the rule of law, and where the dollar is reserve currency of world business,” Dr. Kelly said.
And no matter the type, slight dips or rises in currency aren’t likely to factor in at all, experts agree. Simply because if someone is investing in luxury real estate, they probably have other significant investments elsewhere in the world, Ms. Hoagland said.
“Just by virtue of trading in different markets and different currencies, international players have a lot of natural hedges in their investment portfolios,” she said. “If they lose on one currency trade, they’ll gain on another.”
Here’s a look at other news from around the world compiled by Mansion Global:
Gulf Arabs May Find Brexit a Mixed Bag
Britain’s status as a safe haven for real estate investors from the Gulf is likely to stay intact, with a favorable exchange rate making it cheaper to buy there. However, Gulf investors also may have less cash to invest soon as rock-bottom oil prices dropped another 5 percent on news of Brexit, Al Arabiya reported citing John Sfakianakis, director of economic research at the Riyadh-based Gulf Research Center. (Al Arabiya)
Post-Brexit Gloom Knocks U.K. House Prices Down 5%
Investors expect a 5%fall in home values over the coming year, fueled by fears that uncertainty will prompt consumers to delay home-buying decisions, while longer-term economic weakness could also set in. “The London market was starting to slow anyway,” Richard Donnell, research director at Hometrack told the Financial Times. “A lot of the cards are stacking up against London before we overlay the uncertainty of Brexit.” (Financial Times)
Hong Kong Real Estate Sees Slowdown in First Post-Brexit Weekend
The Brexit referendum shook consumer confidence in Hong Kong’s property market, with decreased demand in secondary and primary markets immediately after the vote. Transactions last weekend dropped to a 20-week low, according to property agency Centaline Property Agency. A post-Brexit report by Credit Suisse said that homebuyers were “holding back and looking for more concessions from sellers." (South China Morning Post)
Western Australia Homes Increasingly Selling at a Loss
The number of people losing money on property resales in Western Australia is growing, according to the latest ‘Pain and Gain’ report from real estate data firm CoreLogic, which shows 9.2% of homes resold in the first quarter recorded a loss on their purchase price, up from 8.3% at the end of 2015 and higher than the 8.8% in the same period 12 months ago. Across Australia, the total value of homes sold at a profit was $12.9 billion, while $362 million worth of homes sold at a loss. Homes sold in regional Western Australia were the most likely to record a loss, at 43%, while homes in Sydney fared best, with 98.1% selling at a profit. (News Australia)
Zuckerberg’s Rock Wall Irks Hawaiian Neighbors
Facebook founder Mark Zuckerberg's neighbors are grumbling about a 6-foot high rock wall he's having built on his property on the north shore of the Hawaiian island of Kauai. “Before when we drove along the road we could see the ocean and see through the property, it's closing off that view," retiree Moku Crain told the Associated Press. A spokeswoman for Zuckerberg says the wall is designed to reduce highway and road noise. (Associated Press)
Moscow Luxury Home Prices Zoom in Rubles, Plunge in Dollars
Luxury new-home prices have risen 39% - to 844,000 rubles per square meter from 607,000 rubles two years ago, according to research by Top Brokers Alliance, Construction.ru reports. But a declining rubles has seen those prices fall in dollar terms by 29%, from $18,040 to $12,780 per square meter over the same period. (Construction.ru)
Real Estate Driving Mauritius' Foreign Investment Boom
Foreign buyers seeking a tax haven on the Indian Ocean island of Mauritius are snapping up the island's luxury properties and pushing local developers to build more, as they take advantage of a citizenship offer that requires little more than a $500,000 investment in the former French colony. In the first quarter of 2016, 80 percent of foreign direct investment was in Mauritius real estate, AFK Insider reported.(AFK Insider)
Industrious New York-Based Architect Explains His Formula
Ismael Levya, who's designed more than 64 luxury apartment buildings in New York City, explained his philosophy to Tech Insider: “The development of mixed-use buildings, where retail, offices, hotels and residences are combined in one structure, or in a cluster of buildings — that's the dream, or it's going to be the dream,” Levya said. “Mixed-use buildings minimize travel distances, because people tend to concentrate in certain areas rather than spread, which is what has caused the problem of traffic.” (Tech Insider)