Currency Matter

Off Plan Property World offers its clients currency exchange services through its partnership with Globex Foreign Exchange. Globex is one of the world's leading foreign exchange brokers with locations across Canada, the United States, the United Kingdom and New Zealand. They provide thousands of individuals and businesses with currency exchange services at exceptional rates.

Below is Globex's beginners guide to currency exchange in property investment, which will help to make your overseas investment go as smoothly as possible.

This page will guide you through:

• Effects of Currency Rate Moves
• How to Protect the Price of Your Property
• Spot and Forward Contracts Explained
• Useful Tips

Effects of Currency Rate Moves:

The fluctuations in the exchange rate between currencies can seem small but it can make a significant difference when it's the amount required for a property purchase. For example, if you were looking to buy a property for 250,000 Euros, the rates between July and August this year could have either cost you:

1. 6th July GBPEUR 1.4422 Eur250,000 = GBP 173,346.283
2. 1st Aug GBPEUR 1.4875 Eur250,000 = GBP 168,067.23

The US Dollar provides another example:

1. 17th July GBPUSD 1.8176 USD 250,000 = GBP 137,544.01
2. 8th Aug GBPUSD 1.9145 USD 250,000 = GBP 130,582.39

This is a resultant difference of £6,961.61 in just three weeks.

How to Protect the Price of Your Property

There are essentially three different approaches to buying the currency you need to purchase your property.

1. Wait until you have to pay it -
   This clearly isn't ideal because, as the rates are moving everyday, you will not know exactly what it will cost you until the last minute. Not many people are happy with this approach, which can be aptly described as 'pot luck'.
2. Buy all the currency now -
   If you have to pay for the property in six months time you could simply buy all the currency now and you would know exactly what they would cost. If you have an appropriate foreign currency account you could deposit the funds in that account and accrue interest on them. This solution means you will know what it will cost but to do it, you need all the funds available. Often, when people are buying a property overseas, they are selling or re-mortgaging a UK property and hence having the full amount of funds 'tied-up' in Euros is not always convenient.
3. Fix the exchange rate you will get in the future -
   Whilst this may sound strange, it's actually very simple and the most popular way of knowing what your property will cost. If you speak to Globex, we can offer you a rate for the future. So, if you have to pay for your property on Jan 25th 2007, we can give you a rate that you will definitely be able to get on Jan 25th 2007. You will normally need to put down 10% of the value of the currency you are buying and then, just before 25th Jan 2007, you pay the further 90% and the currency gets sent to your designated destination. This is basically a buy-now-pay-later deal, and is known as a 'Forward'

Spot and Forward Contracts Explained

Spot Contract -
This is buying currency immediately or 'on the spot' if you like. If you agree to a Spot contract, you will have bought the currency immediately and you will then need to pay for it within 24 hours of agreeing to it and the funds can be sent out two days after you have agreed to the deal (sooner in some cases). So if you have a payment due on Jan 25th 2007 you would want to do the spot deal no later than Jan 23rd, to allow time for you to make a payment and the currency to be sent out.

Forward Contract -
This is essentially a buy-now-pay-later contract which allows you to fix the rate you will get in the future and know exactly what your property will cost you.

Helpful Information

Set your Limits - It's an unusual situation when you are buying property abroad. You may have found the property you are looking for and then watch the currency rates for a good time to buy the foreign currency. It would be usual to see the currency market move daily, the prices of your property going up and down by £thousands each day. This is where it can get tricky if you haven't set your limits. One week it may cost £130k, the next, £140k. You may watch it, hoping it will go back to £130k but if it goes the wrong way, you are looking at £145k and still hoping it will get back to the exchange rate you first saw.

It's prudent to lay out three prices when you start looking around:

Target Price - what you are aiming to pay for the property
Upper Limit - the price at which you will go, but no higher
Lower Limit - the realistic price at which you would be very happy and do the deal

Whilst it's just common sense, having these limits in your mind can stop you from getting carried away with the market and save you time, tension and cash.

Value Dates - When you speak with a currency specialist you will be asked what 'value date' you want. All this means is what date you want the currency delivered.

If you do a spot deal the standard 'value date' is two days after you agreed to the deal (this allows time for you to pay for the funds etc.)

If you arrange a forward contract you decide the value date. It's prudent to choose a value date that is two or three days prior to when your funds are due to arrive to the vendor, to leave time for the international transfer etc.