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Real & pound exchange rate

Discussion in 'Brazil Property' started by nigelallen, Oct 5, 2007.

  1. nigelallen

    nigelallen New Member

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    I have not seen it discussed much on this board but i think it is an important thing to think about when buying abroad,

    It was only just over a couple of years ago i was getting over 5 reals to a UK pound, today it is 3.69 to a pound,
    2 years back a house costing $R200,000 Would cost £40k that same house today would cost £54k an increase of 35% in 2 years,

    Some on here would like us to think that the increase in prices in brazil is down to the mad rush of people buying property, when in fact the real rise in real estate is down to the exchange rate.
    worth discussing surely? just remember in 6 months the Real could be back to over 5 to the pound and anything bought today would be worth 35% less. ouch.
    Cheers

    Nigel
     
  2. robh

    robh New Member

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    Nigel,

    My 2 cents:

    1. Property in Brazil is bought or sold in Reals, and all the price rises that have happened have been a rise in the Real price. The 35% you quote here is just a bonus on top of the Real price increase an investor would get when converting back to pounds if they invested 2 years ago.

    2. The currency was really bad as the economy was crud (inflation of up to 43%) and to top it off Lula threatened to default on Brazil's IMF loans. Then Lula got inflation under control and paid off some major loans to the IMF so the currency went up.
    Now the economy is stable and growth is good, and unless Lula screws up the economy most analysts don't think you will see any serious declines in the currency. Most long term predictions say the Real will keep going up but not at the same rate as the last couple of years.

    Anyway why are you building a development if you think the market is that bad and your customers will make a loss when they buy?

    Regards,
    Rob.



     
  3. robh

    robh New Member

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  4. PAUL-brasil

    PAUL-brasil New Member

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    Your spot on Nigel, They was good forcasts on the Real 2years ago when i got into it as it enhanced my dession on Brazil, at the moment the real has stayed very stable, of the last 2years more it has always ranged between 3.7 (at lowest when pound weakens and real Strenghs at same time) and almost 4.4 (when the oppersite obviously) to the £, at the moment tho the £ has followed the $ at a falls against most other major currencies due to the credit crisis hence why the real is looking even stronger, but im expecting the £ to strenghen again soon against the real back to it normal £1 to R$4.

    I also guess though later that the Real will truely strenghten more in time against the £, $ and euro.
     
  5. Golfingworld

    Golfingworld New Member

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    Last edited: Oct 6, 2007
  6. PAUL-brasil

    PAUL-brasil New Member

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    I think the simple fact is for the Off plan fans is that if the real strengths and pound weakens then their stage payments is going to (until the development completes finally) cost even alot more when bought in reals, making their 25% over price into for example a 30%-35% overprice, if the buyer has also borrowed from banks dont forget to add your interest on to these figures, before you know it you could potentially overpay 45%.
    If the developer asked for payments in euros and the reals strenghens against the euro aswell then dont be suprised to see the delevoper prefered currency change to the real, again ive seen happen (Porta Das Corias even did this), also if you are going to pay all in euros then bear in mind £1 was 1.5euros only 2/3 month ago and now is struggling with 1.43euros. My point again that its the pound that is weakened. And also for the investers the Real strengthening at the moment is NOT GOOD NEWS its the last thing you want while your paying and is what you want when you sell Obviously!
     
  7. robh

    robh New Member

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  8. beenthere

    beenthere Guest

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  9. beenthere

    beenthere Guest

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  10. nigelallen

    nigelallen New Member

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    Hi Paul,

    Timing is everything, I think you will agree, in a lot of countries you can easily get a bank account and when the currency is in your favour you can send a few grand over their, not so simple in Brazil, because it is an absolute nightmare getting a bank account, also you have the cost to change £ into $ then $ into Reals, I think the exchange rate is as important as how much you pay for your property
    Tell me how many people on here have got a bank account in Brazil, (apart from people who live in brazil)

    As you said Paul the rate fluctuates between 3.7 and 4.4.
    even that trading range can make a big difference when buying or selling, lets say you want to buy a 3 bed apartment for $R275,000 Today @ 3.7 that will cost you £74k at the other end of the trading range 4.4
    that apartment is costing £62k a difference of £12k in other words TWENTY PERCENT.

    Rob , answer to your question,

    'Anyway why are you building a development if you think the market is that bad and your customers will make a loss when they buy?

    The reason i am developing? well my motto to developing is, never sell anything i would not be happy to buy myself, now the most important reason i am happy to sell my properties is because of the rental return, we have done our homework, we are in the right location and feel strongly that clients will get 15% after all cost `s, to me that is everything.
    if the price of the property were to go down by currency exchange rate or any other reason people will still get a good return on their investment, and in time hopefully the value will increase, I do give the positive views to my development which is a good CG is possible along with an excellent return through rentals, but i also do make people aware of the risk involved in buying in an emerging market, if i did not make people aware i would not be able to sleep at night,
    that's the way i work, not exactly business man of the year i know, but i have worked like this all my life and it has served me well,
     
  11. Golfingworld

    Golfingworld New Member

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    I am afraid Rob that on another thread on here you tried to convince me that by not buying now and paying the 25% premium, I would be losing out against inflation. You even posted your mathmatics. This is fact, so I am not insulting you, I am accurately pointing out how ludicrous this statement is. Likewise, a European or any other foreigner living outside Brazil does not see his price in Reis, he converts it back to his home currency as that is what he works and thinks in. Yes prices start in Reis but this is irrelvant to a foreigner as he needs to find the funds in his own currency, not having a pile of Reis under his floorboards. If this not the case, why are most sites offering prices "starting at..in xxx Pounds or Euros"? If Reis are the standard, why quote in other currencies. Why, because that is what buyers think in as they do not have Reis based funds or incomes and it is likely if they are after the famous "capital growth" that all you guys talk about, buyers will want this in hard currency. Otherwise, people would be better to play the Forex exchanges and just forward buy currency instead of houses.

    This is a big issue and Nigel is right to raise it also what Paul brasil says will be very sobering for many who have already invested. The long and the short of it is that some of these developments will need to double in price in five years (in Reis market values) and The Euro/Pound will not need to drop any more against the Reis for anyone to make any real money. If the Brazilian economy continues to improve so that these "tourist" developments double in five years, will their currency decline? I am no Milton Freidman but logic would tell me that if there is such demand to double prices (rather than wild infationary rises) their economy will grow and currency get stronger. All you guys make claims about this emerging market and the positive economic forecasts, so why will the Reis drop against hard currencies? End result, you make a capital gain in Reis and lose 30/40% of it in foreign exchange. But there again, there is always the rental guarantees, paid in Reis, that's something, allegedly!
     
  12. robh

    robh New Member

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    Show me where I said anything like that about 25%. I know the maths were a bit difficult but try and read it again.

    As for the rest, I think you should check your maths, because what you are saying doesn't make any sense at all.

    You are saying that the pound/euro dropping against the Real is a bad thing, and you are sure this will happen. An example might help here.

    I spend £100,000 on a villa today which converts to R$ 368,000 today.

    In five years the value of my property has doubled and is now R$ 736,000.

    But as you say because the economy is growing so the Real will strengthen, so let's say in five years you get R$ 3 to 1 pound.

    I get back £245,333.33 which is more than double my original investment of £100k.

    Rob.
     
  13. Golfingworld

    Golfingworld New Member

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    Let me try and explain in words of one syllable if that helps. Buying a property overseas has 2 price factors, local market prices and foreign exchange. Prices can increase locally but actually decrease or increase to a foreigner as he works in his base currency. So, the (alleged) positives of Brazilian economic growth and stability are the very factor that is being sold to justify the potential capital gain. But, if that theory actually occurs it would seem likely that their currency would increase against Sterling/Euros/Dollars. This is not entirely true of course as they also work against eachother, but it is not unreasonable to assume that if house prices grow significantly in Brazil then this will be due to stable and improved economic performance. As claimed on many sellers websites. This could work in favour of sellers as they will sell at a higher price and then convert back to Sterling or Euros from a stronger Reis. But, can they remit their profits out again and what will their capital gains tax be in Brazil? The other point of view is that if prices rise so much and Sterling/Euros drop, this makes Brazilian homes much more expensive and closer to European market prices. If this occurs, will Europeans really want to pay the same as the Costa del Sol and if they don't, who is going to buy all these properties in Brazil? At the end of the day I believe that a European looks through his own eyes with his own currency in his mind and not at Brazilian prices first of all. He then compares this to what he can get nearer home. So if the local market rises and their currency rises, where are all the buyers going to come from to stimulate the market, as I don't believe they will all come from Brazil.
     
  14. robh

    robh New Member

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    You could have made the same arguments about Costa del Sol property 20 years ago.
     
  15. Golfingworld

    Golfingworld New Member

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    I did and look what happened there! Just look at my recent thread on the Banana development where stocks are being offered at 40% off! Where is the capital gain there and what currency are they asking to sell in...Euros? So where is your capital gain and where is your base price in Reis? Game set and match I'd say!
     
  16. nigelallen

    nigelallen New Member

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    Now looking at this situation, the project looks great although it is 3 km from the beach, that has some advantages, being that beach front is very expensive to maintain, the constant wind with salt water will even eat through the roof tiles,
    So the properties have not gone up in value, that's not a problem providing you are getting good rentals,
    but if the predicted rentals are like the predicted capital gain these properties could start to cost,
    of course anyone buying just to have a great place in Brazil to use for them self's, its not a problem, but if bought as an investment i would be a bit worried.
    Cheers.
     
  17. robh

    robh New Member

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    Hey???

    If you bought on the Costa del Sol 20 or 10 years ago you would have cleaned up, you could still sell now and make a bundle. If you bought 5 years ago you still would have done fairly well. If you have just bought something there recently and you can hang on it will still go up in value over the long term once the oversupply has been taken up (which will happen as the population keeps growing there).

    The biggest lesson with the Costa del Sol is location location location, as sales are still happening albeit in much lower volumes. The sales that are happening are in the good locations.

    Re Banana:
    I have seen sales fall through on the developments that we mainly deal with and the developer just puts them back on the market at the current price and they sell.

    I don't deal with the Banana development as I have never been there and don't even know the area and I am also not privy to what is really happening there, BUT as an agent I would be asking some very serious questions of the developer if he started offering units at 40% discount to the current price. I also wouldn't be happy if he put the price up by 40% unless it reflected market conditions and was still a good buy.

    Another explanation is that the original buyer has got themselves into serious financial difficulties and just wants to get out of the deal as quickly as possible to get their deposit back, so they have just asked IPIN to sell it for them at the original price.
     
  18. nigelallen

    nigelallen New Member

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    WRONG THREAD DOH!!!
     
  19. Golfingworld

    Golfingworld New Member

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    Quite frankly I think you guys have started to believe your own hype and you peddle cliches and unsubstantiated positives like a man spraying a hose pipe. Your original buyer for this site happens to be 3 properties, not one. It is simple economics mate, "supply and demand" which means, if the price really goes up (because the real demand is there) then prices also rise, because there isn't enough supply to meet the demand. What you guys seem to do is artificially talk up the demand, so you can claim that everyone has made money before anything is sold. This is fine until such time as punters realise that the real market price is stable or dropping. How do they know that, because some inadequate or unprofessional seller tries to dump stock below cost or the artificially created price. Then those that bought at 100 and realise that the real market value is 60 start to feel sick in the stomach.
     
    Last edited: Oct 8, 2007
  20. robh

    robh New Member

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    GW,

    If you think this is the case find some proof that it is happening. Ask IPIN and the Banana developer why those 2 units are being sold so cheaply.
     
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