Despite the fact that the US economy has not been as robust as many had hoped there is no doubt that the US currency has been very strong of late. Indeed we have seen enormous fluctuations in dollar exchange rates across the world with areas such as Latin America and Europe now becoming magnets for US real estate buyers. There are concerns that this strength in the dollar is just a short-term situation which perhaps explains why so many US real estate investors are so keen to look overseas.
The fact we have seen swings in US exchange rates in the region of 30% against some currencies shows precisely why exchange rates should be taken into consideration when looking to acquire property overseas. If the exchange rate is “going your way” it really can strengthen your hand but if it goes the wrong way it can have a significant impact upon your financial well-being.
Historically exchange rates have been nowhere near as volatile compared to recent times. The ongoing economic crisis, further problems within Europe and hopes that the US economy may well be moving towards a new growth phase seem to have given the US dollar a real boost. This may turn out to be a “one-off” in relation to currency volatility but there is no doubt that some investors are looking to take advantage.
While Latin America is seen by many as one of the major economic forces of the future it is currently being “invaded” by US real estate investors looking to take advantage of the dollar’s strength. Countries such as Colombia, a hotspot with expats, have seen devaluation against the US dollar of around 30% over the last 12 months. This has given US investors a growing influence when looking at many of the more popular areas of Colombia, pushing property prices to levels which many locals are struggling to afford.
When you take into account the long-term strength of the Latin American economy perhaps it is time to look at countries where the dollar has performed well of late?
The euro, heralded by EU partners as the currency of the future, has taken a real pasting over the last few months. US investors are now targeting countries such as Italy, Spain and Portugal for example where there are long-term attractions even if the short-term situation is a little delicate. At this moment in time it is difficult to say with any confidence whether the euro will strengthen in the short to medium term. The Greek debacle continues, many of the major European economies are still struggling and, with the exception of the UK, economic growth will be difficult across the European Union in general.
It is therefore likely that overseas investors will continue to take advantage of a weak euro with the intention of building up property portfolios for the longer term. As we touched on above, the euro may weaken before it strengthens but many believe in the longer term it will at least claw back some of its recent falls.
Many US investors are taking advantage of the ongoing strength of the dollar to increase their exposure to a variety of real estate markets around the world. While not advisable to invest purely and simply on the back of currency movements, there is no doubt that US investors who were looking towards the likes of Latin America and Europe have seen their hand strengthened significantly of late.