Investors beware of falling currencies, warns Assetz

Investors buying property overseas should take heed of recent currency exchange rate swings in the United States and Turkey, warns Assetz, and recognise the value of using overseas mortgages.

In the United States the value of the US dollar has fallen from $1.75 in April to $1.88 to 1 Sterling, which equates to about a 7% loss of capital for British investors who bought there for cash or remortgaged their UK home in order to buy, last year.

However, those who took out an American mortgage will see the Sterling value of their debt falling by the same amount, reducing their loss to just 7% of their deposit.

Similarly, over the last month the value of Turkish Lira has fallen from approximately 236,000 to almost 300,000 Lira to 1 sterling.

This severe currency shift means that those investors who purchased property up to March 2006 with Turkish Lira could now find themselves with a capital loss in the region of 20%.

Mortgages are not currently available in Turkey but are expected to be announced imminently, and will no doubt be a popular choice with new investors who now find themselves with about 20% more buying power.

Stuart Law, managing director of Assetz, says: Those looking to invest in the U.S. and Turkey can learn a valuable lesson in the benefit of using foreign mortgages in the country where they are buying.

If both the property and its mortgage are priced in the same currency, this will minimise the risk to the investor from capital loss.

Even if a local currency mortgage was used it should be noted that the deposit on the property would still be at risk, which reinforces the general overseas property investment trend to buy with minimum equity in Pounds Sterling.

Although Turkish property appreciated by around 30% in 2005, the effect of the currency shift could severely reduce this gain if it feeds into property prices.

While coastal Turkish property is priced in Euros, much of the rest is priced in Turkish Lira and those purchasers from last year or before could have lost around 20% in the last few months.

Equally, buyers today paying in Turkish Lira will be getting 20% or so better value.

US house prices rose about 12% over the last 12 months and much of this gain would have been wiped out by the recent currency shift between US Dollars and Sterling.

Investors buying in the US today are enjoying better value than those from a few months ago.

Law adds: Currency shifts are not a reason to avoid investing abroad, but their effects upon investment returns certainly need to be better understood.