Global business requires moving money across markets with drastically different economies. It can be an intimidating component of global transactions, but there are resources to help! Although you should always refer your clients to a reputable bank and/or money exchange service and immigration tax attorney, it’s still a good idea to give overseas buyers an idea of what to expect and how to prepare. This post will educate you on the basics of currency fluctuation, its importance and transactional impact, and will also offer tools to help you along the way.
According to NAR’s 2016 Profile of International Activity in U.S. Residential Real Estate, foreign buyers spent $235 billion on U.S. properties last year (includes $132 billion commercial real estate investments, according to Real Capital Analytics). To capture this lucrative group of buyers with minimal risk and complications, it’s important to know and address potential issues like currency exchange. Currency values shift daily as a result of a country’s economic strength. This is usually determined by a number of factors including (but not limited to) levels of business activity, employment, economic growth rates and political climate. Even the slightest change in currency value can have a large impact on the overall cost of a transaction.
Hard and Soft Currencies
It’s also important to distinguish between hard and soft currencies. Hard currencies inspire investor confidence and tend to fluctuate less. Examples of hard currencies include the U.S. dollar, euro, Swiss franc, U.K. pound and Japanese yen. Soft currencies tend to fluctuate more than hard and as a result are less likely to be held onto by investors. Examples of soft currencies include the South Korean won, Indonesian rupiah, Brazilian real and the Zimbabwean dollar. When talking about hard and soft currencies, it’s important to recognize that either category isn’t a reflection of the market’s economy, but rather its reputation and perception as a good or bad place to store wealth. Identifying a country’s currency as hard or soft can let you know whether or not to expect a lot of fluctuation.
Helpful Tools & Resources
There are a number of tools that can help prepare you and your buyers while ensuring no one is jumping on a monetary rollercoaster. Moneycorp, a UK-based foreign exchange company with offices globally, including the U.S., have specific resources available to REALTORS® including daily exchange rate emails, market briefs and staff to answer your specific questions should you begin working with a foreign buyer. For more information on their partnership program visit: http://global.moneycorp.com/usa/partners/. In addition, you can view up-to-date rates through the following providers:
Understanding currency fluctuations is just one part of assisting overseas buyers and you should bear in mind that some providers, including Moneycorp, are able to lock into an exchange rate for a period of time which eliminates the risk of your buyer being impacted by a negative rate movement throughout their buying process. Once you understand the country or source where the funds are housed and have a handle on the exchange rate you still have know how to move the funds. Additionally, you’ll need to consider the implications and tax laws that may impact the purchase. Earning your Certified International Property Specialist (CIPS) designation can help sort out these details and provide you with the knowledge to handle such transactions with confidence.
Keeping Int’l Buyers and Sellers in Mind
Although this post, as well as NAR’s 2016 Profile of International Activity in U.S. Residential Real Estate, focuses on international buyers, let’s not forget the vast market of international sellers. For years the U.S. has been an attractive market for foreign investors and should these owners look to sell, they will look to you for currency exchange guidance in the same manner.
“In 2017 we’ve not only catered to the increasing amount of international buyers that continue to look to the U.S. as a good investment, or second home opportunity, our industry is booming with international sellers who are capitalizing on the strength of the U.S. dollar,” said Kelly Cutchin, Country Manager for Moneycorp – USA.
The good news is that the CIPS designation discusses this topic, as well as the process for assisting clients who may be interested in buying outside of the U.S. Click here for more information on becoming a Certified International Property Specialist (CIPS) designee.