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Weekend Property

Savvy Hong Kong property investors warned to be aware of volatile currency swings

Case study underlined how US dollar appreciated 21 per cent from June 2014 to January 2016, making it more expensive for international buyers to buy in the US

PUBLISHED : Friday, 01 September, 2017, 10:10am
UPDATED : Friday, 01 September, 2017, 2:44pm

Savvy Hong Kong property investors intending to buy overseas property may need to focus on the volatile currency market more than any other factor, as even a small movement in the sector could affect returns and the price of luxury properties in major cities, according to a report.

The Global Currency Monitor Report, released by international property consultants Knight Frank, suggests that currency market movements can have a significant impact on the returns provided by an overseas asset, and on the flow of international capital into property markets.

The annual report assesses the impact of currency movements for international investors buying luxury residential properties around the world.

Property agents say Hong Kong investors need to pay heed to the report as London, New York, Sydney, Melbourne and Auckland have all been affected by currency fluctuations in the value of the pound and the respective dollars of the United States, Australia and New Zealand.

Nicholas Holt, Asia-Pacific head of research at Knight Frank, says that currency will continue to be a driving factor for 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 [this] could influence the direction of capital flows,” Holt says.

“Currency can influence returns at the purchase, hold and disposal stages, and investors need to be aware of how fluctuations can impact [on] total returns over the lifetime of an investment.”

Holt says that, despite the significant impact currency can have on an overseas investment, fundamental market indicators such as price performance and yield should not be overlooked.

The currency report highlighted the greenback as a case study. The dollar appreciated 21 per cent from June 2014 to January 2016, making it more expensive for international buyers to buy in the US, which contributed to the 25 per cent fall in non-resident property purchases over the period.

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
Nicholas Holt, Asia-Pacific head of research, Knight Frank

On the flip side, purchases by US residents increased 10 per cent over the period, according to statistics from the National Association of Realtors in the US.

The only rise in US home purchases by overseas buyers came from mainland Chinese and Hongkongers. Homebuyers from China acquired 40,572 residential units in the US in the 12 months to March 31, up from 29,195 units in the previous 12 months. This equated to US$31.7 billion in sales, up 16.1 per cent year-on-year.

Chinese remained the biggest foreign investor group, accounting for 14 per cent of all sales to international buyers, and 26.6 per cent of the total spend.

The four biggest markets for Chinese buyers were California (37 per cent), Texas (11 per cent), Florida (8 per cent), and Illinois (7 per cent). New York accounted for only 4 per cent. The majority acquired properties for their own use, in suburban locations, detached houses and “all paying cash”.

Australian properties were also popular with Chinese investors, especially low-end properties in Adelaide, Sydney and Melbourne, according to Jane Lu, head of Australia for Juwai.com, a Chinese international property website. Buyers targeted cheaper properties because the yuan lost value in the last year against the Australian dollar.

The report analysed four reasons for currency fluctuations – global economic growth, political risk, protectionism and other geo-political factors. These will have differing impacts on global residential markets.

Currency analysts say that US President Donald Trump’s “America First” policy and the tough rhetoric he took on trade with China spooked the currency markets recently, leading to losses for the dollar and gains for the euro. The British pound also lost ground against other major currencies because of continued uncertainty over the terms of Britain’s exit from the European Union, ahead of Brexit negotiations.

According to the report, the six currencies likely to influence buying behaviour this year will be the greenback, the pound, the euro, the Japanese yen, the yuan and the Russian rouble.

It concluded that despite possible currency fluctuations, it is important to be aware that the fundamentals which underpin property markets can be the most significant drivers of performance.