Knight Frank launches the Global Currency Report which assesses the impact of currency movements for international investors purchasing luxury residential properties in key cities around the world.
- Currency market movements can have a significant impact not only on the return provided by an overseas asset, but also on the flow of international capital into property markets.
- The US dollar acts a good case study: The dollar appreciated by 21% between June 2014 and January 2016 making it more expensive for international buyers to purchase in the US which contributed to the 25% fall in non-resident property purchases in the US over the same time period; whilst purchases by US residents increased by 10% over the same time period (according to National Association of Realtors).
- Despite the significant impact currency can have on an overseas investment, fundamental market indicators such as price performance and yield should not be overlooked.
Nicholas Holt, Asia Pacific Head of Research at Knight Frank, says, “Currency has, and will continue to be a driving factor for both property purchaser patterns and property asset performance. Given the monetary tightening cycle now taking place in the US, those with US Dollar or linked currencies will find their spending power enhanced compared to many other markets and could influence the direction of capital flows.
“Currency can influence returns at the purchase, hold and disposal stages and investors need to be aware of how fluctuations can impact total returns over the lifetime of an investment.”
Global Currency Monitor
Knight Frank’s Global Currency Monitor calculates real investment returns for international investors by combining changes in prime prices with currency shifts.
The report’s Global Currency Monitor identified key international buyers in six global cities and highlighted the extent to which currency shifts over the last year (between Q1 2016 and Q1 2017) have influenced purchasing power.
In Hong Kong, Australian Dollar and Russian Ruble denominated buyers found it cheaper by 0.4% and 19% respectively while those with Singaporean Dollar, Chinese Yuan and British Pound found it more expensive by 3.1%, 6.3% and 12.9% respectively.
Currencies fluctuate due to a great number of reasons. The report’s Risk Monitor analysed four risks: global economic growth; political risk; protectionism; and other geo-political factors. These will have differing impacts on global residential markets. The six currencies that are likely to influence buying behaviour in 2017 would be the US dollar, the British pound, the Euro, the Japanese Yan, the Chinese Yuan and the Russian Ruble.
Ultimately, however, despite the currency fluctuations, it is important to keep in mind the fundamentals which underpin property markets; as these can be the most significant drivers of performance.