Currency market volatility creates opportunities for property investors

When you bear in mind that in the not too distant past there were two dollars to the pound (against around $1.33 today) this is a perfect example of exchange rate movements. The U.K.’s decision to leave the European Union caused a flurry of activity in currency markets as investors sold the pound looking for safe havens such as the dollar. There is some debate as to whether the pound will recover in the short to medium term because Brexit is a game changer – but uncertainty creates opportunities for the brave!

So, are you brave enough to play the international property market and take advantage of currency movements?

Double whammy

Over the last decade or so we have seen a significant increase in the number of US investors looking towards the UK with a particular emphasis on London. They have taken advantage of the decrease in value of the pound against the dollar amid suggestions the pound could fall further before Brexit is actually completed. Whether the pound will fall much further than its current level remains to be seen but in the long term there is potential for recovery.

So, a relatively subdued UK property market is beginning to offer long term value and for those switching their dollars into pounds, there is potentially even greater value. If, as many experts suggest, the UK property market does recover strongly in the medium to long term, and the exchange rate against the dollar improves, this could deliver a double whammy to US investors. Hopefully, this should see an increase in the value of their property assets valued in pounds sterling and a further improvement when converting back to dollars.

Timing is the key

It all sounds fairly straightforward, switching to a low value currency with potential for a recovery in due course, invest in a property market which is under pressure but has fundamentals which are still attractive in the long term. Overseas investors looking at the European countries, but the switching into euros from sterling, Australian dollars, US dollars or any other currency, have an even greater selection of property markets.

It is obvious that economies around the world move in different cycles, individual markets within economies can move at different paces in different directions but taking advantage of short-term weakness can prove extremely lucrative. There is the same potential for the rental market but obviously any exposure to currency movements does offer a degree of additional risk as well as traditional asset risk.

Conflict creates volatility

Over the years we have seen significant volatility in currency markets as a consequence of conflicts whether this is the Iraq war, Brexit or the ongoing public fight between North Korea and the USA. The impact of individual conflicts will obviously depend upon the nature and the duration but even long-term wars are eventually priced into the market and effectively ignored by investors. So, if you are able to see the wood for the trees, i.e. see long-term potential in an international property market, in times of trouble then there may be an opportunity to create a double whammy of your own.

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>