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In the February 2010 Issue of Property Investor News
Currency Performance
Property investors are searching harder than ever for below-market-value (BMV) properties both here in the UK and overseas. However, when buying abroad, finding a property that is cheaper than other comparable properties in that city/area is only half of the BMV equation. If for example, you decide to buy a property in Tokyo because it is 30% undervalued, you would be foolishly ignoring the fact that the Japanese Yen is 31% stronger than sterling compared to the last quarter of 2008, so buying now would effectively erode all of that perceived value.
When buying abroad, the dream scenario is to find a property market that has fallen on average by around 30% in value in the last two years (as many markets have) and where the currency in that country has fallen by around 30% compared to your country of residence. Then you need to find a property that is also 30% below the current market value. For example, if a Japanese investor were to buy a property that cost £300,000 two years ago in one of the UK cities that has seen average price falls of 30% since then (to £210,000) and he managed to buy at 30% BMV at auction (£147,000) for example, then that £300,000 property from two years ago would now be bought for the equivalent of £103,000 in Japanese Yen, due to the 30% decline in the value of sterling during the same period. This represents a 60-70% discount!
It is for this reason that a number of overseas property investors have been buying up property in prime London of late, especially from Asia, plus European buyers that are benefiting from a stronger Euro. According to some estate agents in central London, almost half of their total residential property sales in 2009 were made to foreign investors.
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