International property investment can be an extremely lucrative business. But it’s wrought with many risks because many factors affect this industry. The majority of them are entirely out of your control and hard to predict.
Foreign currency exchange rates are one of these factors, and investors must learn how to minimize the risks coming from this specific area. The same goes for developers who are relying on imported supplies.
As it might not be possible to find other suppliers without significant losses overall, construction businesses need to watch global financial markets as well as follow their suppliers’ countries’ politics as carefully as property investors do. And remember that volatility can work both ways, which means that it might lead to either losses or gains on your part.
Catching the right moment and securing the most favourable rate can be crucial for taking your business forward.
Exchange Rates Volatility & The Global Property Market
The foreign currency exchange market is volatile at the best of times. This situation isn’t likely to change because there are too many factors impacting the stability of a currency.
Political and economic factors are the trickiest among them because they can make a significant impact fast. And once the FX rate crashes or jumps high, the economy is sure to suffer the consequences. This, in turn, leads to more changes. Also, considering the growing level of globalization, it’s not only one country that gets affected. Inbound and outbound investments suffer as well, which has a far-reaching impact on a variety of industries.
You can easily see all these issues through the changes of Pound Sterling, which used to be one of the more stable among the world’s currencies.
Not so long ago, it plunged to its lowest in years due to the uncertainty surrounding Brexit. And this even even though over time, the global economic community managed to accept the idea of Brexit and understand that it won’t result in some sudden collapse.
The panic around the issue has receded, and yet any news about it still causes the GBP to weaken. And if there’s one thing you can be sure of in regards to FX rates is that it takes a currency much longer to recover its strength than it does for it to plunge.
A similar situation of politics impacting the currency and through its economy as a whole is happening in Turkey. Due to the local political situation, the change there is much more pronounced.
The local currency dropped by over 45% in regards to USD in less than a year. These changes matter significantly for the global property market and the global economy as a whole because they prompt investors to pull out their capitals.
Also, local businesses that deal with other currencies, either by receiving or making payments, suffer because their costs increase due to the currency’s weakening. And yet, nothing “physical” changes, so they can’t offset these losses in any way.
That’s why property developers also face high risks due to FX rates volatility. For example, even now, the world can see that the Brits have cut back on their investments into European properties. This, in turn, affects local economies, which lose a rich source of income.
By the same principle, it becomes easy to see that jumps in FX rates affect every level of both global and local economies.
How Do You Reduce The Risks Associated With FX Volatility?
Using a better money transfer service than the one offered by traditional banks is the most crucial step that can protect both property investors and developers. Today many companies offer an alternative to costly and inefficient bank wire transfers.
You’ll only need to use a comparison of FX brokerages vs traditional banks to understand which of the many options is the best for your particular case. These companies are incredibly versatile, so you’ll need to consider the location, size, and frequency of transfers you need to make when choosing one.
Aside from offering better terms and rates closer to the mid-market exchange rate, these companies also provide a variety of tools to reduce the risks associated with FX rates volatility. These include various hedging tools.
Investors, as well as property development businesses, can use those to secure favorable exchange rates for a period of up to a year. This will protect them from the losses that could occur if the exchange rate changes. But this also prevents them from making a better deal if the difference goes into a different direction.
Therefore, you need to do a lot of research into the FX markets and global economy and politics before making your hedging decisions.
The good news is that leading money transfer companies offer help with this as well. They provide guidance that can help their customers understand what the best rates are and when it’s time to secure them. This type of advice allows even non-professionals to make educated decisions and therefore, reduce their risks further.
Modern Portfolio Theory
Investors also shouldn’t forget the Modern Portfolio Theory, which can help them reduce the risks caused by FX rates volatility through portfolio diversification. In a way, this principle promotes the idea of investing internationally, and to multiple locations to boot.
Yes, there will always be some risks involved when you depend on foreign currency exchange rates. But both property investors and businesses involved in construction, which rely on import, need to understand that the rewards can be worth the risks.
Of course, you should be doing everything within your power to reduce them. This is when money transfer companies and forex guidance come in.
However, don’t let the fears keep you from making considerable profit from international business projects.
Globalization is growing by the day and dealing with foreign businesses and properties is a common thing today. In fact, it’s becoming a necessity for those who strive to boost their business as the opportunities abroad are often much more significant than what you have available locally.
Property markets worldwide will be impacted by FX rates for as long as currencies exist. Therefore, you should focus on finding ways to get the best deals and secure them in a way that will make you sell affected by the industry’s inherent volatility.