International Property Alerts - Iain Maitland
I wrote a paragraph in France Property Alerts yesterday which generated a response and a PS from Peter at the International Law Partnership which will be of relevance to everyone who has bought or is planning to buy in Euroland.
Here’s what I wrote…
“If you have bought in France, the news that the pound continues to weaken against the euro - the exchange rate was down to €1.25 to the pound recently – is good news say property specialists VEF. The increase in the value of the euro means that properties have grown in value by almost one-fifth. If you are buying in? VEF says, “As we keep predicting, house prices in France continue to rise and the euro continues to strengthen against the pound. The gap between the dream property that you might have been planning to buy and what your money will now get you is growing daily. There are houses out there at the moment where prices can be negotiated by as much as 15 per cent but do not leave it too long. The selling season is really getting underway now as summer appears around the corner.”
And this is Peter’s main reply – of interest to all of us!
I know what VEF are trying to say. Basically they are saying that if the Euro continues to strengthen against Sterling that those people who bought will do better because any increase in the price of the property is increased by the change in the exchange rate. They are using this as a reason to buy.
Technically, this is correct but I suspect that if Sterling strengthens against the Euro they will be telling people that now is a time to buy because the properties have got cheaper! Oh how I love spin.
If I look at my statistics it is easy to see how much the weakening of Sterling to Euro has affected purchasing power. Let us assume that you have £100,000 to spend (because it is a nice round easy figure which makes the calculations easier - I am a lawyer after all)!
At the moment your £100,000 is getting you about €125,000. This time back in September your £100,000 would have bought you €141,300. A €16,300 difference in the purchase price over half a year is a huge difference on a modest property. Those people who committed to buy properties in the Euro zone a year ago and who did not talk to their currency dealers about forward buying at the time will now be hurting because their purchase is costing them more than when they did their initial calculations.
(Hopefully, all of the ads I ran for Rob at Sterling Exchange in the autumn means that IPA members are not hurting, Iain).
Basically it all comes down to what people think the Euro will do in the future. If we think that the Euro will continue to strengthen against Sterling then it may be the time to buy because even if the value of the property doesn't go up you will make a profit just from the currency. If, on the other hand, we think that Sterling will recover against the Euro then it may be worth holding on until the rate improves and the price of the properties become more affordable.
Having said all of that France is one of those countries where there is always likely to be interest. People by and large buy there because they love the country, the culture and the people and this means that it is likely to always be in demand. Italy and Portugal are similar. These countries tend not to be affected so much by trend and fashion and have fewer pure investors - which I have always thought is a good sign for long term investment. As you know I always get a bit nervous about countries where everybody is buying as an investment because of the lack of exit strategy.
And here’s Peter’s PS…
Further to my comments, I see that Overseas Property Professional are reporting that agents in Spain are starting to advise their clients to sell their properties in Sterling rather than Euros which obviously gets around the currency exchange issue (assuming that you are selling to Brits). I suspect that various other Euro Zone countries which sell mainly to Brits may start to consider doing the same. We quite often see this when a British seller is selling to a British buyer and they both want to deal with Sterling.
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