London is, without doubt, the property investment capital of the world.
In fact, according to Knight Frank, a new property development on the South Bank offers better returns than the FTSE 100 and gold.
And there is little doubt that the right properties in London have the ability to do just that. The real estate group CBRE, says that property prices in London are forecast to grow by more than 30% over the next five years. No wonder then that the number of listings for properties in London worth more than £2 million have more than doubled in recent weeks, with many being snapped-up by foreign investors, according to estate agent comparison site Getagent.co.uk.
Foreign investors recently accounted for 80% of sales in a prestigious Thameside housing development and news stories abound in the national press (e.g. Financial Times and Guardian) of wealthy Russian oligarchs, Chinese entrepreneurs, Middle Eastern Sheiks and rich Indian families all being eager to buy into the British housing market.
But as with stock market investments and gold, there are no guarantees when it comes to property and factors such as foreign exchange rates can make life particularly challenging for foreign buyers. The volatility of global economies and political instability of some countries, mean that exchange rates can move significantly and unpredictably and can add tens of thousands of pounds to the cost of a property transaction.
For example, the outcome of our recent general election immediately strengthened the pound, which was good news for Brits planning a shopping spree abroad, but bad news for foreign investors buying property in the UK.
In fact Investec’s foreign exchange team has calculated that the strengthening pound added, in the seven-day period following the election, £33,361 to the cost of a £1 million home for an American buyer, £32,545 for a Chinese buyer and £33,203 for a Russian buyer.
So what can be done to alleviate the problem of foreign exchange costs?
The answer is for buyers to get professional support with their FX transactions, rather than leaving them to pot luck. At Investec, for example, we have a professional FX team, who can not only manage FX transaction on your clients’ behalf, but can also provide them with valuable insights into potential future currency movements and help protect their fund transfers against market fluctuations.
What’s more, our FX team can set-up a currency access account to facilitate funds transfers and are happy to deal directly with an overseas clients’ legal team – often in their native language – to ensure a transaction runs smoothly. You client will be able to talk directly to our FX dealers who will monitor the markets on your clients’ behalf and notify your client if, for example, a target exchange rate is met. And, they can act quickly when the right time comes, because they have direct access to the trading floor.
Unfortunately, we can’t completely remove the thorny old issue of exchange rates, but we can help to minimise their effects by professionally managing transactions. For foreign investors buying property in the UK, exchange rates can be as significant a cost as stamp duty, legal costs and agents fees and can add significantly to total transaction costs.
And, in the same way it pays clients to get professional advice when seeking a mortgage, so it pays to get professional advice when it comes to managing foreign exchange transactions.
There’s no need to let fate take control.
Peter Izard is business development manager at Investec Private Bank