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Climate currency

Most of the time, property is bought with money. So what do the world’s shifting currency markets mean for today’s budding overseas property buyers? Phil Agius, managing director of Pure International investigates.

Five years ago, the majority of our day-to-day business came from people buying second homes in places like Switzerland, Spain, Canada, France and Italy. Back then, British buyers of properties in Euro-based countries, for example, could comfortably expect to get a lot for their money in terms of the price of properties and the cost of living.
At this time, £1 was worth around 1.6. Today, it is a very different story. The British Pound/ Euro ratio is at approximately 1:1. Similar currency rate changes are happening elsewhere and for people based in the UAE, these changes are turning out some attractive opportunities in overseas real estate, not only for buyers, but for all associated with such a purchase.

The UK is a prime example for such an area. In July 2008, the Dirham was hovering around 7.3 to the pound. By February, just seven months on, the rate was 5.2 to the pound. For people in the UAE who receive their cash in Dirhams, UK property has been discounted by almost 30%.

This shift in Dirham/Pound currency values has created an increased curiosity by institutional level investors, portfolio investors and British expatriates.

“The recent drop in value of the Pound against the Dirham, combined with falling asset values in the UK, has generated some exceptional buying opportunities.

Through our global network we are seeing buying opportunities at Dirham prices that would have been unthinkable only six months ago,” says Bob Hird, senior director, head of investments at CB Richard Ellis, Middle East.

The basic currency savings can also be combined with other types of discounts, making overseas property even more attractive. Take a property costing £800,000, for example. Last year, this would have equated to AED 5.84 million. From the exchange rate alone, now, this investor would save AED 1.68 million. Furthermore, with current times as they are, a developer might offer a 20% discount. So by seizing the opportunity, savings on just one property purchase will be somewhere in the region of 45-50%.

“Such opportunities are available in all asset classes, including office, industrial and retail, not just residential. As 2009 progresses, I believe more attractive opportunities will become available as private owners, institutional investors and banks come under increasing pressure to sell.

For purchasers to take advantage of these opportunities however, they need to be aware of what is happening in the market now – not wait until later in the year to commence their investigations,” says Hird.

Such savings mean that, against current trends, viable and tangible business opportunities for all property sector companies related to overseas property purchases can perhaps be realized.

The stage of construction at which a purchaser buys a property, combined with currency exchange rate changes can also increase the potential profit margins, thus increasing the likelihood that the deal will actually go through. With off-plan properties and the right sort of negotiation, a buyer can tie in the currency exchange rate at a set figure for up to two years and so if the pound gets stronger, investors already secured a favorable rate.

Once all the potential savings and profit margins are understood, the most difficult question of all crops up - ‘When is it the right time for them to react?’ Currency brokers, mortgage brokers and property lawyers report massive spikes of business interest relating to second homes abroad.

This tells us that most people regard the prices to be as low as they are likely to get and as such, the window of opportunity is open.

One key thing to remember in a situation like this is that there (unfortunately) will be no magic signs for buyers to say, ‘now is the bottom. Buy now or it’ll be too late and you’ll miss it.’ Companies in this changing sector need to understand this and see that all the signs indicate the time is now.

“On a cautionary note, property investors should be careful to base their investment decisions predominantly on property fundamentals, rather than currency fluctuations. Basing future investment returns on current currency exchange rates alone, is a dangerously flawed strategy,” says Hird.

Institutional investors appear to be moving into ‘buy-mode’ and prices are at levels which haven’t been seen for 10 years.

What does this mean? It means it is time for the everyday individual investors to start doing some serious investigating.

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