How Do Currency Exchange Rates Affect The International Real Estate Market?
Changes in currency exchange rates affect international real estate markets in major ways. These changes have a real impact on foreign demand in the real estate market as they determine at any given time whether an international real estate market is on sale, or overpriced. Changes in currency exchange rates can also determine whether foreign real estate owners can sell for large profits, or whether they will endure losses.
Consider the following scenario…
A wealthy buyer from Brazil wants to buy a luxury condo in Miami for $1,000,000. In May 2016 the exchange rate was $1 equals 3.61 Brazilian Real(R$). This means the Brazilian buyer would spend R$3,610,000 real on the house. In February 2017, the exchange rate changed to $1 equals R$3.05. This means that as of February the same house would cost the buyer only R$3,050,000, a difference of R$560,000.
The Role of Foreign Purchases in The Miami Real Estate Market
Foreign currency exchange rates are especially important in Miami, because foreign purchases make up a large percentage of the market. International sales accounted for 24% of the sold units in Miami based on the National Association of Realtors (NAR) Profile of International Home Buying In Miami. Two years ago, EMW Realty International reported 36% of homes sold for $1 million-plus were sold to buyers from outside of the US. Many of these are luxury or investment buys with 72% of international buyers paying cash.
The US dollar has strengthened, which has lead to the number of international sales in Miami decreasing over the past several years. 62% od realtors in the NAR’s report say the exchange rate had a significant effect on international sales in 2016, which is an increase over previous years. Still, NAR found that foreign buyers purchased approximately 10,900 properties worth $6.2 billion during August 2015–July 2016, which is about the same levels as July 2014–June 2015.
Miami Is A Major International Real Estate Hub
Miami is cushioned, to some extent, from the effects of the changes in currency exchange rates because it is such a strong international market. Buyers from Europe and South America see the US as a market where they would rather move their assets, and Miami just happens to be one of the major international hubs.
“We haven’t seen any real flight from this market to capitalize on the exchange rate. It leads me to believe that not only price and value but the concept of safety and security – and ultimately our perceived discount as compared with other metro markets – are what attracts foreign buyers…Currencies will even out, as they always do. We are moving expensive real estate in new developments, and that’s a telltale sign about the desirability of our market.” Jay Parker, CEO of Douglas Elliman’s Florida Brokerage.
South Florida ranked as a top-five market for consumers in nine of the world’s ten-largest regions in January 2017. On the list of top-10 U.S. markets for international real estate demand, Miami-Ft.Lauderdale-West Palm Beach ranks number 1. – South Florida Real Estate Market Facts and Trends
Top International Markets For Miami Real Estate Investment
Based on the National Association of Realtors 2016 report, Venezuela, Argentina, Brazil, Colombia, and Canada accounted for 51% of the internationals sales units in Miami. The same report found that Brazilian and Canadian Buyers Purchased More Expensive Properties On Average Compared to All Foreign Buyers.
Some of these markets have been adversely affected by the changing currency exchange rates, while others are now in more beneficial positions. For example, in May of 2016, one U.S. dollar was the equivalent of $3.61 Brazilian Real. However, at a point in February of this year, $1 was equivalent to $3.05 Brazilian Real. That is a 3.6% fluctuation in buying power just over the course of one year. As shown in the example scenario above, on a $1,000,000 house that is a difference of R$560,000. These types of fluctuations can have major impacts on the role of foreign buyers in the Miami real estate market.
The Colombian peso’s exchange rate has also seen great as of late. $1 has equaled everywhere from 2828 and 3182 Colombian pesos this year. Having an agent who has a strong understanding of how exchange rate fluctuations will affect property values can save a client hundreds of thousands of dollars.
Currency Exchange Rate of Top 5 Countries Bringing Buyers To The Miami Real Estate Market
*As of April, 2017. Exchange rates change frequently. See the current exchange rate.
- 1 U.S. Dollar = 10.02 Venezuelan Bolivar
- 1 U.S. Dollar = 15.39 Argentinean Peso
- 1 U.S. Dollar = 3.18 Brazilian Real
- 1 U.S. Dollar = 2940.47 Colombian Peso
- 1 U.S. Dollar = 1.37 Canadian Dollar
Our agents are experienced with the role of currency exchange changes in Miami real estate transactions. Contact us today to get answers to your real estate questions.