08 Aug 2006
Pound Strong against Dollar and Euro, overseas property a good bet
Last week UK interest rates rose to 4.75%, which seen the Pound increase in value against the dollar. This is a trend that may continue, some experts are predicting that the pound could reach the $2 mark and may even exceed that in the near future.
The pound sterling today stands at $1.91 and 1.48€ respectively.
As many banks, organisations and investors are buying up sterling, this will only help fuel the strength of the pound and therefore the weakening of other currencies against it like the Dollar and the Euro. In the US however the country's key interest rate has been held at 5.25%, which has been introduced to slow down the economy.
So how does this affect buying property abroad?
As an investor buying with pounds sterling, property markets where the local currency is in US dollars are starting to look more appealing. As the pound becomes ever stronger you effectively get more bricks and mortar for your money.
Example: (based on Inter bank rates not high street rates)
A property in Florida on the market at $200,000
In April 2006:
The price would be approx £115,000 @ 1.74
In August 2006 (when the pound is stronger):
(based solely on currency fluctuations, as the market price may have risen)
The price would be approx £104,000 @ 1.91
A saving of £11,000 over 4 months
The reverse would also be true if you bought today and in 4 months time the US dollar had returned to its value of April 2006, then you would have turned a profit of £11,000 just on the currency exchange.
As a long term strategy for property investment this could mean more profit as you will be able to gain from a rising property market and currency fluctuations assuming you buy at the right time of course.
However remember currency is a volatile market and like any form of investing is risky. A good knowledge of the subject will certainly help you decide when to buy, as timing is the key.
Which property markets are advantageous in this position?
The first and most obvious is the USA and in particular the Florida property market.
Panama has used the US dollar since 1904.
The British Virgin Islands
Turks and Caicos Islands
The Bahamas local currency can be freely exchanged at 1:1 versus US dollar
Barbados and Belize are exchanged at 2:1
On many of the other Caribbean Islands the US dollar is an accepted currency for property transactions.
The Malaysian Property market is another option as the Ringgit is pegged against the US dollar.