US Dollar Weakness & Foreign Investors
A: As the US Dollar continues its slide, foreign investors SHOULD (and I stress SHOULD) get more interested in US real estate; especially in big cities such as New York where foreigners usually live & work. When comparing a 1YR trading chart of the US Dollar vs. EURO I see a steep sellof that brought the greenback down to a new 12 month low: 1 EURO = $0.7527 US Dollars.
Foreign investors whose currency is the Euro are enjoying such a strong currency these days that investing in US assets becomes a very wise investment. Before buying real estate in the US, the Euros are converted to US Dollars where they get much more bang for the buck than they did just one year ago. Look at this quick analysis of what 500,000 EUROS would buy you in US Dollars today vs. 12 months ago:
12 MONTHS AGO (1 EURO = 1.194 US DOLLARS)
500,000EUR = $597,000 US Dollars
TODAY (1 EURO = 1.33 US DOLLARS)
500,000EUR = $665,000 US Dollars
Talk about currency changes! The same amount of EUROS buys you almost $68,000 more US Dollars today than it did 12 months ago! That means investors in Europe can take their Euros and buy pretty much $68,000 (assuming a buyer with 500,000 Euros of course) worth of housing features/upgrades for the same amount of money RIGHT NOW due to the depreciation of the US Dollar and comparable appreciation of the Euro. Thats quite an incentive if you ask me.
The US Dollar is still expected to fall which means EURO's could buy even more US Dollars down the road. By looking at the simple example above you can see how much money this actually equates to. Here is a chart so you can visually see the dropoff of the greenback vs. euro over the past 12 months:
Take a look at what investment mogul Warren Buffet said earlier this year on his predictions of the US Dollar; so far he has been right on ("A Word From A Dollar Bear"):
Says Buffett: "The rest of the world owns $10 trillion of us, or $3 trillion net." That is, U.S. claims on foreign assets run to only $7 trillion. "If lots of people try to leave the market, we'll have chaos because they won't get through the door." In a nutshell, the trade deficit is forcing foreign central banks to ingest U.S. currency at a rate approaching $2 billion a day. Buffett continues: "If we have the same policies, the dollar will go down."What To Expect: As the US housing market continues to remain flat to down, foreign investors should be getting very interested in NYC real estate from a currency investment standpoint since the dollar is in freefall. As long as this trend continues, expect outside buyers of NYC real estate to help stabalize our housing market and provide a nice chunk of demand that most suburban markets will never see.
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Comments (9)
Great point, Noah. I've heard that Europeans had been buying condos in Manhattan during the recent boom years.
In your experience have you seen this trend continuing?
Posted by DowntownGal | December 12, 2006 3:47 PM
Well I haven't sold to any European investors as yet who told me the reason they are buying is take advantage of market trends in hte currency market, but from colleagues and other brokers I speak to out in the field, I hear that they have foreign investors who are looking to get into the NYC market as it cools.
Im only assuming that at least one reason a foreign investor would look at the nyc market as an attractive investment is currency valuation and the fall of the us dollar. Quite simply they can get much more for the buck.
If I do run into a client buying with this reasoning, Ill certainly pass it on to the blog.
Posted by Noah | December 12, 2006 4:02 PM
I could be your first client then Noah. I'm watching both the NYC housing market and the sterling:US dollar market to look at taking advantage of the nearly $2 we get to sterloing right now, which is the weakest the dollar has been against sterling for 14 years, when the UK fell out of the ERM in 1992. Personally i'm still on the fence with this, thinking the dollar could go one of 2 ways, and most "lauded" economic forecasters vary in what they say between it being "too strong" to "too weak" so go figure!
I certainly think with year end approaching and corproate repatriation going to occur, where we might see a further decline in the dollar as firms sell it off and repatriate funds back into their home country currency, as well as a continued$ very large US current account deficit and the shift of central banks around the world looking to move into sterling based holdings (the UK has a similar central bank interest rate to the US), we could see the dollar continue to slide.
However, just yesterday i was reading that forecasters at Goldman and Leheman are predicting a sterling slide next year, ending down at $1.65+ against the pound which, for us considering getting a place in NYC, would be pretty devastating. You can read more here:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/12/12/cnster12.xml
Anyway, i still think it's too early to call, but for currency traders and those thinking of buying in the US, it is interesting times indeed, and certainly a good time to watch both the housing and currnecy markets like a hawk.
Noah, could you please briefly outline the sorts of entry costs/issues first time foreign investors like myself might incurr when purchasing there? My wife is a US citizen from NYC but lives here in London with me and we could always purchase in her name to make entry issues easier, hence our desire to perhaps pick something up now "on the cheap", but i'm wondering what sort of barriers to entry we might find.
Any thoughts or pointers would be appreciated.
Cheers,
Dave
Posted by Dave | December 13, 2006 3:55 AM
Cheers Dave..good to hear from you again! I am not aware of any significant barriers to entry from a foreign investment standpoint other than that you will probably want to purchase a condo.
If this would be an investment property or second home, than a co-op would be a tough purchase. So, buying a condo would at least give you the flexibility of using property as investment and a no headaches process on both buyside and sell side. However, your costs to do the deal will be more.
Calculating about $20K per $500,000 worth of house you buy is a quick aproximate guide to estimating what total closing costs would be, adding in a 1% mansion tax over $1M. But closing costs will include your first months mortgage payment and some tax deductible items. Your attorney should go into this part in more detail.
Interesting points you bring up. Love it!
Posted by Noah | December 13, 2006 9:12 AM
Surely the thing to do for UK investors would be to buy dollars when the dollars weak, then wait for the US housing market to bottom out, with most folk predicting the worst is not over yet, presupposing you can get a dollar mortage if required?
c.f..
http://www.moneyweek.com/file/23207/why-a-dollar-correction-is-unavoidable.html
Posted by jono | December 26, 2006 10:12 AM
I was thinking of buying a small Manhattan apt (NOHO, SOHO, CHELSEA, W.VILLAGE). My questions are:
1) As a non-US citizen/resident what would be my tax liabilities in the US if I were to subsequently sell at a profit?
2) As a non-US citizen/resident what would be my tax liabilities in the US if I were to rent it out for part of the year?
3) What sort of outgoings might I need to budget for municipal taxes etc ?
4) How much would I need to purchase a 1 bed/loft in one of the above areas??
Best regards
Posted by Dr Robert Shiner | March 1, 2007 8:28 AM
hey noah as a non us citizen from ireland i have alot of equity which i would like to invest in a 3 family home in newyork i visit the city around 5 times a year just want to know how i would go about this and is it possible...
Posted by ciara | September 26, 2007 1:49 AM
Hello Ciara
Were you able to purchase in New York City as yet? Were you still interested? I have some really good below market properties right now I can discuss with you and anyone that is interested.
Naima
Posted by Naima | March 6, 2008 8:33 PM
Nsanowar@aol.com for further information
Naima
Posted by Naima | March 6, 2008 8:34 PM