Currency Matters 2014 – Assessing the Impact of Currency Movements on Luxury Residential Markets Around the World

The magic number? 

  • We examine whether a change in the pound/euro exchange rate appears to influence the number of properties in the Eurozone being viewed by UK based buyers – and see two key trends. 

London v New York post 2009 

  • While currency matters to purchasers, it remains only one of many considerations, with investors weighing purchase costs, affordability and market transparency. 
  • One of the most notable occasions when these factors aligned was in 2009 in London. Prime prices dipped by 24% in the year to March 2009 but a period of strong growth then ensued (prime prices jumped 20.7% in the year to April 2010). Buyers, both domestic and foreign, saw London’s luxury bricks and mortar as a safe haven investment. 
  • In 2009 the pound had weakened significantly against key Asian currencies. This shift proved influential in attracting Asian interest in the UK capital. 
  • At the same time the US dollar remained relatively stable against the euro and key Asian currencies. While New York saw a flow of overseas investment into its residential market, the resilience of the dollar dampened what could potentially have been a bigger influx of foreign buyers of international investors. 

Kate Everett-Allen, Partner, International Residential Research at Knight Frank, said: 

“While New York has seen considerable ‘safe haven’ investments flows in recent years, the resilience of the dollar dampened what could have been a much bigger influx of foreign buyers.”

Global Currency Monitor - Knight Frank has created the Global Currency Monitor which calculates real investment returns for international investors by combining changes in prime prices with currency movements. 

Buying in: Prime London - Time period: Last year

  • Due to the strengthening pound over the last 12 months – there are few non-sterling buyers for whom prices in central London have appreciated at a slower rate than for local buyers.
  • Only buyers from Iceland have an advantage compared to British buyers, with prices rising by only 6.6% over the 12 month period. 
  • The currency advantage for Asian buyers looking to purchase in prime central London now has diminished compared to 2009 when the weakness of the pound gave them a significant advantage.
  • The good news for those Indonesian, Australian and Chinese buyers who bought in prime London a year ago is that their asset has appreciated rapidly, by 37.8%, 32.5% and 18% respectively. 
  • But for that same cohort of buyers looking to buy in 2014 the strengthening pound has made a London investment comparatively more expensive.

Buying in: Prime Hong Kong - Time period: Last 5 years

  • Prime prices in Hong Kong rose by 67.9% in the five years to March 2014 but buyers from New Zealand and Australia would only pay 10.2% and 25.6% more than in 2009 respectively due to the strength of their currencies.
  • In contrast, Japanese or Turkish property owners in Hong Kong may see the current confluence of prices and currency as an opportunity to sell.
  • The pegging of the Hong Kong Dollar to the US Dollar largely negates any currency play between the two, leaving buyers from either territory having to rely almost exclusively on price growth if looking to achieve their investment returns.

The extremes

  • A Brazilian buying in Miami for example, would have paid, on average, 30.6% more in March 2014, than a year earlier, with only 17.2% of this growth due solely to price growth.
  • In the year to March 2014, one of the largest uplifts would have been enjoyed by a Turkish buyer purchasing in Dublin, who would have seen a 58.3% return. 
  • The biggest loss over this period would have been an Icelandic buyer purchasing in Moscow, an admittedly rare combination.

Currency Trends to Watch

  • If the Chinese Yen is devalued, Chinese buyers are unlikely to be as active in the international property markets as they have been. 
  • If the sterling strengthens further some foreign owners may take the opportunity for profit taking. 
  • If the US Dollar rises as expected, demand for prime residential property in those markets favoured by US buyers such as the Caribbean, Italy, Ireland, the UK and France may increase. 
  • If the euro weakens, foreign buyers who retreated from many second home markets post 2008 may start to return.
  • The Yen is increasingly viewed as a ‘safe haven’ currency, having fallen only 0.3% in the first half of 2014 against the pound. Tokyo may increasingly appear on the radar of international investors. 

Courtesy: Knight Frank

For more information please contact:

Astrid Etchells, International PR Manager: 

+44 20 7861 1182 or [email protected]

 

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