By Neel Gondhia
Even with Dubai property prices forecast to decline this year, foreign owners who sell now could still make up to 25% year-on-year by taking advantage of the increasing strength of the US dollar
With over 100 nationalities living and working in the UAE and billions of dollars being remitted on a yearly basis it comes as no surprise that many expats are rubbing their hands at the strength of the US dollar (USD) and, therefore, the UAE dirham (AED) which is pegged to it.
What must not be taken for granted however is just how long the current highs we are witnessing will be on offer. With low oil prices, the delaying of the inevitable Greek exit from the euro and many other factors coming into play over the next few months we will see some 'normality' return to the currency markets, resulting in a bearish run of the USD against all the major currencies. This has already been demonstrated with the USD losing around 2 percent to the British sterling (GBP) since mid-January.
That being said, it does not necessarily mean bad news for expats in the region. Regulated foreign exchange brokers are able to secure exchange rates for up to 2 years in advance, usually with a 10 percent deposit of the amount being secured. Banks and high street exchanges don't generally offer this. Therefore, if you are an expat with regular obligations in your home currency you can fix a rate which enables you to take advantage of the current situation without putting an unnecessary strain on your finances.
A typical case in example would be a client that secured the AED/EUR rate for the next two years. Should the euro return to the levels seen in June last year said client will be 18 percent better off than his expat colleagues. The same goes for companies dealing with overseas suppliers or investors purchasing abroad. The savvy chief finance officer or investor will realise that by taking advantage of the tools on offer they will not only increase profitability but when offloading said investment/asset they will also gain a higher return on investment. Savvy or not, small or large: whatever the exposure now would be the time to look at protecting yourself against movements against you in the future.
The same rule can be applied to the property market. A stronger USD means a stronger dirham and that is good news for expats looking to cash in and return home or take advantage of low rates for international investments. It has become apparent that sellers are reluctant to budge on price, and are not being persuaded by what is clearly "market value" offers that are being presented on their properties. In a market where every penny counts from both a seller and buyer perspective, it would be useful to highlight the benefits that are currently on offer to international sellers who are repatriating the proceeds of their property sale.
The illustrations below highlight just how much of an impact the currency markets have on international sellers. A rise of above 10 percent against most currencies means that now is as good a time as any to drop the price a touch to get more viewings/offers and still net a similar or higher return than they would have been possible 7 months ago:
AED vs GBP
3m AED property in July 2014 = 476,190 GBP
3m AED property in Jan 2015 = 545,454 GBP – 14.54 percent increase
3m AED property today = 535,714 GBP – 12.50 percent increase
AED vs EUR
3m AED property in May 2014 = 586,395 EUR
3m AED property in Jan 2015 = 734,034 EUR – 25.17 percent increase
3m AED property today = 722,021 EUR – 23.19 percent increase
AED vs AUD (Australian dollar)
3m AED property in Jul 2014 = 860,585 AUD
3m AED property in Jan 2015 = 1,069,900 AUD – 24.32 percent increase
3m AED property today = 1,053,370 AUD – 22.40 percent increase
AED vs CAD (Canadian dollar)
3m AED property in Jul 2014 = 868,558 CAD
3m AED property in Jan 2015 = 1,044,204 CAD – 20.22 percent increase
3m AED property today = 1,029,159 CAD – 18.49 percent increase
AED vs NZD (New Zealand dollar)
3m AED property in Jul 2014 = 925,925 NZD
3m AED property in Jan 2015 = 1,135,933 NZD – 22.68 percent increase
3m AED property today = 1,102,535 NZD – 19.07 percent increase
Currency markets are extremely unpredictable and it is irresponsible to try and guess which way the market will turn. An astute property investor should simply look at the facts, which are that if they are repatriating funds to the likes of Canada, Europe, New Zealand, Australia or UK then they are significantly better off to sell now, in some cases close to 20 percent better off than 6 months ago.
In fact, international sellers can drop the property price by more than 5 percent and still net substantially more in their home currency than last year!
* Neel Gondhia is a currency consultant at Dubai-based International Foreign Exchange (IFX).
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You would probably have to discount by a lot more than 5% on your fantasy selling price to get a sale. You could then buy property in a place like London in a bubble about to burst, while the Dubai market may rebound more strongly when it recovers. Probably such currency advantages are only worth considering if you have to leave now, and I had my first call from somebody just made redundant last week, and don't think it is going to be the last. Besides who says the dollar's bull run is finally over? Sell everything and buy gold is you want to hold the only currency that will still be standing as the central banks print money, although houses would also be better than holding paper! PS The author is a forex broker so he would advise switching currencies would he not? Commissions?!