The simplest and most accurate way to describe the term exchange rate would be to say that it’s the value that one currency has when transferred into another. Most commonly, these currencies are exchanged by someone who’s traveling to another country, seeing as how some of the smaller vendors (or all vendors, depending on the country) may only accept their native currency. Still, the effects of the exchange rate go far beyond the mere convenience of your travel attempts. It also impacts some of the most important aspects of the world’s economics, like the real estate market. Here’s an example of how this works.
1. What affects real estate value?
Now, before you jump straight into the exchange rate, it’s important to mention that there are some other factors that affect real estate as well. In general, you have five major factors (and several other minor factors) that are seen as the most important. You have the location, the market, the condition, the neighborhood and the age of the place. So, if we were to say that real estate is impacted by the exchange rate, we would have to list this phenomenon as a sub-category of the “market” factor.
2. The foreign investors
The biggest problem with a rise and drop in the value of a currency is that it isn’t immediately followed (if at all) by an adjustment of prices. Imagine a scenario in which you are investor A, an investor in real estate within your own country and there’s investor B, an investor from a foreign country. In this fictional scenario, both of you have the same exact amount of resources (in your respective currencies). Once the value of your own currency drops, even without any moves made by either you or investor B, they suddenly have more resources available. Their purchasing power grows and the availability of real estate in your own country starts looking a lot more appealing.
3. Stronger currency increases property prices
Oppositely to the above-listed scenario, as your currency strengthens, the value of your property price rises. For a real estate investor, this means that the ROI yield decreases. So, for any serious real estate investor, especially one who is either concerned about foreign investors or has the ambition to invest abroad, it’s absolutely invaluable that you closely monitor the value of your currency. Even more importantly, you need to track currency pairs. The way you do this is quite simple. You have to find a specialized currency trading platform like Ever Forex.
4. The cost of living
Oftentimes, real estate investors plan to buy a rental property in order to generate a passive return. The problem is that when the purchasing power of the people in a certain area is affected (which happens when the value of the currency changes), the cost of living gets affected as well. This means that your rental properties might no longer be as lucrative or they may, all of a sudden, become a lot more profitable.
5. Rental property management
The last thing you need to understand is the fact that rental property management also needs to be something you take into consideration. You see, if you’re a foreign investor, you’ll need a local to manage your property and this local’s paycheck will be determined by the exchange rate. This may seem like a minor issue but it only goes to show just how deeply these things tend to be intertwined.
At the end of the day, it’s more than clear just how important it is for you to watch out for the value of the currency, provided that you have any ambition of investing in a foreign market. The same thing goes if foreign investors are a huge factor in your local real estate market (like for instance, Chinese investors in Australia). Sure, there might be nothing that you can do about the value of your own currency but this knowledge should definitely be something that forces your hand.