How to protect your international property purchases in volatile times
These are volatile times for anyone purchasing a property overseas. From Covid-19 and a potential no-trade-deal Brexit to political instability in Hong Kong and the upcoming US elections, the global economy is rife with uncertainty.
For many property buyers, this is the precise environment when plans turn to looking internationally, with the aim of diversifying their portfolio and minimising the risk.
However, this does expose you to one further risk: currency volatility. The foreign exchange markets are completely unpredictable and, if you don’t put in place strategies in advance, you have no way of knowing how much the fixed price you agree in one currency will cost you in another until the moment you come to pay.
The Risks of International Transfers
The markets react to an almost never-ending list of stimuli, from headline-making economic releases and political decisions through to something as small as a thumbs-up from a minister, or hearsay of what a speech will contain.
As the world absorbs the economic impact of Covid-19, we expect the markets to continue to be even more volatile. Already, throughout spring 2020, the pound against the euro rose and fell by almost 15%.
The impact of this is clear. Imagine you are purchasing a €3,000,000 château in France in pound sterling. Between February and March, the eventual price of that château would have increased by almost £500,000.
None of us would accept a margin of error for costs of almost 20% for any business decision – so why accept the same for a property purchase?
Protecting Your Capital Against Market Risk
There are any number of forecasts out there which will tell you which way the pound, the euro or the dollar are going – but none of them are ultimately more than educated guesses. If nothing else, the law of probability says that the majority of them have to be wrong, as none of them agree. The major banks’ predictions for GBP/USD for 2021, for instance, have a 30c spread.
The solution, then, is not to attempt to second-guess the markets, but to put into place plans to secure your money against those live markets in advance. At Smart Currency Premier, many of our clients are buying property or other assets such as yachts across borders. For the vast majority of these people, the safest option is a forward contract.
This secures you a fixed exchange rate, usually for up to two years. That way, whenever the markets drop, your capital is unaffected.
The process is simple. You discuss your situation with your Personal Trader and agree to the exchange rate to be fixed and the total sum that you will be looking to exchange in the future. Upon payment of a small deposit, typically around 10%, your Personal Trader will purchase the total currency on your behalf. It is held in a segregated, secure client account, ready to exchange when you need it.
With a forward contract in place, you can draw up a realistic plan for your purchase or investment, knowing that you won’t encounter significant hidden costs at the very last minute.
To discuss suitable risk management solutions for your money, speak to Smart Currency Premier today on
+44 (0)20 3504 4694.