How Currency Devaluation Creates a Real Estate Boom

Posted On Wednesday, 18 November 2020 21:25

Nowadays everybody is aware of the frightening impact of the pandemic on the global market and its accompanying economic crisis. Most of the international currencies are in front of great danger and no wonder why the US dollar has also raised serious concerns. The value of USD continues to drop and the financial industry tries hard to protect themselves from the related crisis but for some investors, the situation is not really favorable. 

Today the tendency that exchange rates of lots of national currencies go down is pretty obvious. The currency devaluation process can be really harmful to many investors and it can have negative consequences in general but as some financial experts suggest, it can also have a number of important advantages. In fact, the good news is that for some investors real estate can play a vital role against currency devaluation. But usually, the effects of the currency devaluation tendency on real estate varies according to the country of origin of the investor. For example, it can have a negative investment influence both locally and internationally for American investors as it plays the role of stealth tax on real estate investments. 

However, at the same time, this can be beneficial for foreign investors. Most of the time they receive a discount on US real estate purchases as a result of the advantageous foreign currency conversion rate disparity. This is why foreign investors that decided to invest in US real estate can convert their national currencies into more dollars and as a result, real estate is less expensive for them while on the contrary, the prices for American investors to purchase US real estate rise. 

The same can be said about the UK markets where currency devaluation is considered a great problem as well. This is mostly about foreigners coming in and buying real estate here rather than locals buying it. As a result, British investors face lots of challenges. The shift of the exchange rates, generally caused by Brexit and related current geopolitical and financial instability, affect the retail industry. This may be the reason why sometimes they come up with the idea of withdrawing from the country. But sometimes they find a solution by contacting the best forex broker UK because the involvement of the third party can be helpful to conduct trading effectively and safely as they provide favorable conditions for trading successfully. 

How does the exchange rate affect the real estate market?

Fluctuating currency rates remain a concerning matter for everybody who takes part in the financial industry even in today’s globalized world. Different regions and economies depend on different currency rates but these currencies have relative value to each other. Of course, this value changes and evolves over time, meaning that sometimes you can even be able to gain value without making any trades if you are holding the assets that grow in purchasing power. Therefore, the exchange rate really does affect the real industry sector but this can happen in many different ways some of which are advantageous while others cause serious issues. 

To explain how this happens, imagine that the law says that property can’t be priced under foreign currencies, so companies use local currency but hike it way up. But here’s the deal. Once it is devalued, it basically means that it becomes significantly cheaper for foreigners, thus coming in and buying in bulk. Obviously, foreign investors coming and buying real estate in large quantities and generally at a reduced price is not something desirable for local ones. But this often happens as the governments try to reduce trade imbalances to avoid importing more goods and services from a foreign country than it exports to a particular country. Therefore, sometimes taking this step is important to stimulate the economy and make real estate go up by increasing demand. 

Impact on real estate investors 

One thing is certain, as Business Insider suggests, real estate investors can make good use of the process of currency devaluation and secure passive income streams from renting or wholesaling. Usually, currency devaluation occurs when the government prints money and the result is the increased supply and reduced demand. Thereby, the consequence is lowering the value of the national currency. 

But the real estate prices follow different principles and devaluation only affects the value of a given currency against other currencies, which means that it doesn’t have any direct influence on prices but causes negative investment results. For instance, if we take the United States as an example, in the middle of the currency devaluation id doesn’t really matter if the US dollar is valued at $1.00 or more in relation to other currencies, a $700 000 home selling on the US market will be still $700 000. This is why sometimes the actual result of the currency devaluation policies is wealth destruction for real estate investors. 

Therefore, the fluctuating level of currencies can have a great impact on foreign real estate investors. Specifically, if the foreign currency increases, then there is an influx of foreign investors in the real estate sector as they are suddenly given the chance to buy more property as a result of the more purchasing possibilities. But on the other hand, currency devaluation can also be harmful to their success because if their property is located in an area where the currency has just devalued, the value of their rental income will reduce. This will cause a huge decrease in their return on investment, but also currency devaluation affects the cost of living, concerning potential tenants and their decision-making process when it comes to renting a property from the foreign investor. 

This is why both clients and investors have to be aware of the current market conditions and prepare for potential market changes. So, keep on studying the market because real estate is something that is always needed despite the circumstances.

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