Foreign Perspectives

Archive for the ‘Exchange Rates’ Category

Although not too many people are doing it at the moment, this is probably one of the best times to consider buying an overseas property as prices are generally rather more depressed than they normally would be. Having said that there are lots more people selling or at least trying to these days which in itself brings up similar issues.

For a start there’s the different legal system to consider. Even if you’re European and buying or selling in another European country you can still find that, although illegal, the local authorities will retain some of the proceeds of a sale in case it turns out that you owe them any taxes. It’s worth pointing out to the legal person dealing with your sale that they are legally required to treat you as though you were a national of the country and that applied even if you fully intend to take the proceeds abroad afterwards so long as it’s to another European country.

Obviously with a property investment you can be talking in terms of quite substantial amounts of money and if you’re going to be changing currencies then it’s worthwhile looking into your options to reduce the costs of exchanging the money to the other currency and also of reducing the risk to you of there being a substantial move in the exchange rate. For example, this year the pound/euro rate has moved from around 1.10 to around 1.20. Ten cents doesn’t sound like much but if you’re looking at a typical property of around the EUR 300,000 mark that’s EUR 30,000 of a difference which is enough to cover legal fees with change or think of it as the swimming pool that you quite fancied.

How do you reduce these charges and risk? If you go to your bank as most people do you are likely to be hit with the maximum charge possible although the charge can be even higher if you just use the local legal people to send you the proceeds as they’ll add charges on top of that. The best way is to go to one of the specialist money brokers who can shave 5% or more off the charges that the banks apply and can also arrange to fix the rate you’ll get months in advance which eliminates the uncertainty in the amount that you will ultimately receive. Aside from the charges from the rate fix, there are no downsides as if the exchange rate moves in your favour you can let the fix lapse and exchange the money at the current rate.

On non-financial matters don’t neglect the time delays inherent in overseas moves generally. Not only does the money take longer to arrive (unless you just take it as a suitcase full of cash which is quite legal though may raise a few eyebrows), but it’s obviously going to take longer for the removal truck to move your stuff from A to B. There aren’t any formalities required in moving your own stuff around Europe although expect checks for illegal immigrants at the ports and be sure that the lorry doors are secured with a padlock (most aren’t) to avoid a few questions along the lines of the “have you packed the case yourself” familiar to air travellers.

It’s best to plan the move more carefully than you would for a normal domestic move as you’ll appreciate from the above that there are a lot more places that complications can arise.

The current economic difficulties are pretty unusual in their severity and therefore what “we” should do is not necessarily the same as what we’d ordinarily do by ourselves.

Typically, it’s prudent to build up some reserves in the bank to tide oneself over the hard times. However, if we all do that in the moment then chances are that the downturn will go on for a great deal longer than it needs to. What’s needed is for each of us to act as though the downturn didn’t exist as much as possible.

So, for instance, the banks have basically been told to return to normal lending practices “or else”. In fact, they need to do that for their own sake as tightening up on the lending criteria as many had been doing was simply acting to stagnate the economy which is good for nobody, including the banks.

From the rest of us what’s required is that we don’t simply bank any savings that we’re making but rather that we spend them and thereby do our bit to restart the economy.

Whilst your instinct might be to increase the size of any savings reserve as much as you are able, it’s the worst thing that we could do collectively.

That’s basically what governments around the world are doing right now when they’re supporting the banking system.

For normal people, borrowing even more to get yourself out of a hole can only be a short term solution and even then it only works if you have something else up your sleeve. Bridging loans are typically successful in this area because you’ve a house for sale on the market and will repay the loan when it’s sold.

It’s also only a short term solution for governments too, albeit the term over which they can get away with it is somewhat longer: typically several years or perhaps a decade. That “something up the sleeve” is mainly tax rises to pay interest on the loans that they’re getting and to start repaying them as well so we can all look forward to significant rises in taxes in the next term of our governments (perhaps even in the current Obama term as he won at a very unfortunate time). Other possibilities are asset sales of course so we can look forward to privatisations on a grand scale in a few years time although the unwinding of the various nationalisations of various banks will also need thought.

The other downer for governments is that borrowing more basically means printing more money which in turn reduces the value of that money which is why exchange rates are all over the place at the moment.

Of course, all this work is dependent on the banks returning to normal loan criteria and everyone spending money to get the economies going again…. not an easy thing to do when things look this bleak.