Today’s “Ask the Expert” column features Matthew Leonard, theManaging Director of Private International Payments with Moneycorp.
Q: As exchange rates continue to fluctuate, how can real estate professionals—in conjunction with foreign exchange specialists—work with overseas buyers to ensure their money goes further?
A: The U.S. dollar has become mighty once again. In January 2015, an already strong U.S. dollar hit an 11-year high against other major currencies. This enables Americans to buy foreign products at cheaper prices and to travel abroad with fewer dollars. However, the strong dollar means overseas visitors face paying higher prices on real estate in the U.S., due to the resulting unfavorable exchange rates.
These changes in the exchange rate reflect currency traders’ appreciation of a strengthening U.S. economy, compared to a stagnating European economy. Indications are that the European currencies will continue to deteriorate against the U.S. dollar in the near future, while the U.S. economy steadily improves. For example, in early July 2014, the Euro-Dollar exchange rate was Euro1=$1.368. By early January, it was Euro1=$1.209. If investors were transferring Euro 250,000 for a property purchase, that would have meant a difference of over $39,000 between the high and low points.
Combine this with the recent recovery of the American real estate market following the 2008 credit crisis, as an overseas investor, you’d be forgiven for thinking twice before looking to America for a bargain property. For example, most of the United States’ 20 major cities saw strong house price rises last year, with Miami registering the biggest year-on-year increase of 10.3 percent in Q3 2014.
Despite this, the U.S. real estate market remains one of the most sought-after for international investors seeking security, profitability and respect for property rights.
International buyers’ purchasing power may be waning with the strengthening dollar. However, as a real estate professional, you can use your market expertise to provide your clients with invaluable, reassuring advice regarding the most cost-effective means of making international payments from their home country to pay for their dream home in the U.S. and other regular payments that will be required to pay ongoing costs, such as maintenance—as well as transferring funds from rental income back to their home bank account.
You can inform them how a foreign exchange specialist can help with making international payments, preventing overseas buyers from falling victim to the volatile exchange rate market. A currency expert might suggest using a ‘forward contract,’ allowing your buyer to lock in at today’s exchange rate, even if they don’t need to make the transfer for up to two years. Locking into an exchange rate ensures the cost of buying their dream property overseas will not rise between the time they put in an offer and the completion date, allowing them to plan ahead.
And that’s not all. Using an exchange expert will ensure your client gets a more competitive deal than they would from their bank, as these institutions typically offer lower exchange rates and higher transfer fees. So, at a time when every cent counts for overseas real estate investors in the U.S., you’re helping them make their money go further.
For more information, visit www.moneycorp.com/usa.