Real estate investors come from two different perspectives; the locally-based investor and the internationally-based investor. Depending on which one you are, there are different ways of factoring in the exchange rate and the way it affects your property investments. Foreign exchange trading allows someone to further diversify their investment portfolio and if you are an investor in international real estate, you cannot underestimate how useful this can be to your investing strategy. The link between foreign exchange and investing in international real estate is quite simple to understand, and with due diligence it is possible to make sound investments.
Over the past year there has been significantly increased volatility in the global currency markets and if you are an investor in international real estate, it would not surprise me in the slightest to hear that you have noticed that investing in international property has become very expensive in some places, and likely far more attractive in others. If you invested in property in the United States a year ago, you would have noticed that the USD has since strengthened against most major currencies. That means that just one year later, you could sell your investment and more likely than not make a healthy profit.
On the other hand, if you invested in either Japan or Europe, you may not be feeling as confident as you would have noticed that these currencies have weakened dramatically against the USD over the past year. This means that if you sold your property in Yen or Euro’s now, you would have more likely than not noticed that you have lost money on your investment. What about investing now? Both Japan and Europe will be an attractive addition to most portfolios because their economies are supposed to improve in the future, which more likely than not means their currencies will also appreciate in the future too. Purchasing in either of these two markets would therefore be a long-term strategy.
What about Malaysia? Well, investing in the Malaysian property market from the point of view of an international investor has become a very attractive option, because the Malaysian Ringgit has received complete punishment against a basket of currencies over the past half-year. Due to the continuous pressure the Ringgit has faced, international investors can expect to receive far more money when transferring money into Ringgit than they would have previously anticipated. This means Malaysian property has become attractive to investors, and it would not surprise me to learn that more overseas investors are investing in Malaysia.
Locally-based real estate investors in Malaysia with USD or Euro savings abroad may think of purchasing land by first exchanging foreign currencies into Ringgits and then paying for their property, thereby benefiting from a favourable exchange rate, regulations permitting. Speaking about the global economy, things are looking more positive than they were this time last year. While the dramatic tumble in commodity prices has inspired unexpected pressures on those economies reliant on commodity exports and concerns over declining economic momentum in China are continuing, both the US and UK economy are performing on a consistent basis. Job creation is the star performer of the US economy and has become the backbone of the economic revival in the United States, while the economic outlook for the UK is the envy of developed economies.
Although the pace of economic progress has been questionable at times, there is finally some signs of improvement in both Japan and Europe. The pace of improved economic data from these two major economies has come under scrutiny in the past, despite this we have seen signs that both economies are benefiting from their dramatically weaker currencies in recent weeks. This is something that will need to continue in the second half of the year, although an improved economy in both Japan and Europe would improve the global market sentiment ten-fold.
With that being said, the economies that are reliant on commodity prices have been hit hard by the dramatic decline in the price of crude oil since the middle of last year. This decline has also affected global inflation expectations, and to be honest, only the US economy has managed to escape the downside pressures such an unexpected phenomenon has presented. In regards to those economies that have been negatively impacted by the decline in the price of oil, it is mostly the emerging markets that have felt the brunt of the force and this has result in continuous pressure on currencies such as the Malaysian Ringgit, Indonesian Rupiah, Nigerian Naira and even the Russian Rouble.
The combination of the decline in the price of oil coming at the exact same time optimism emerged over the Federal Reserve being in a position to begin raising interest rates has truly pressured the Malaysian Ringgit. While it is true that the decline in crude oil has inspired downside economic burdens, the economy of Malaysia is still performing at an acceptable level and the recent GDP report was still stronger than some expected. It is the trader attraction to the USD that has inspired the downfall of the Ringgit, with this being the major catalyst behind the currency depreciating dramatically to a multi-year low against the Dollar this year. As mentioned above, this is not an impact that has just been restricted to Malaysia and we have also encountered a 12-year low in the Indonesian Rupiah, while also seeing record lows in the Nigerian Naira and Brazilian Real.
The anticipated timing of a US interest rate rise will unfortunately be coming at a time when the emerging markets will have a strong preference towards avoiding any more additional pressure on their currencies. This may be unavoidable, however, the likely US interest rate rise in the next couple of months will mean further downside pressures on the emerging markets in the months ahead. However, the Federal Reserve being in a position to finally begin raising interest rates should provide confidence in the global economy with a massive boost, and this is something that can also help the emerging markets and global economy in the longer-term.