Hi Neil,

I was pondering that very point too, so thanks for addressing that.

Could you please tell me how to know whether it is likely that property will be sold in Euros or the local currency and what factors dictate this??

Also could you clarify how the investment performance update figures are calculated, in respect of currency exchange rates where you would not be selling in Euros, (as PS always quotes in Euros).

Large currency movements could make a significant impact on the bottom line when it comes the time to sell a property!


Many thanks,


Marcus P

Hi Marcus P

I've asked Stan - who is in charge of lettings and re-sales at PS/ i-PropertyAssets to address this question.

However, there may be a simpler answer - if you fall into either of these two categories

a) if you hold for the long term - exchange rate fluctuations will pretty much even out - and so long as you have your money in the stronger economy (ie Romania) and you end up repatriating to a weaker economy (ie UK) then you'll be okay.

b) if you sell in the short term - so long as you re-invest in that currency - or a comparable one (say Ukraine or Belarus in two years time) then you don't realise any currency exchange rate - therefore, this is again irrelevent.

The point is this - you can effectively remove exchange rates as an issue if you are willing to take either of these views.

Cheers
Neil

Hi Marcus P

reply from Stan is

"In order to be legally valid the amounts of the sales transactions in Romania have to be expressed in local currency. However, the following formula is always used ’…the price is an equivalent of xxx.xxx EURO payable in Lei at the rate of exchange of the date of transaction…’

"In this way the danger of serious devaluation is avoided as well as the danger of inflation (if the transaction is extended in time). We have exactly the same situation in Poland. The rents, especially in contracts longer than one year, are expressed in EURO payable in local currency at the rate of exchange of the date the payment is due."

It seems that for big purchases the Euro is becoming the defacto currency in CEE. Not much to worry about then.

Cheers
Neil

Hi,

We've talked about this happening previously and the fact is that, just as we're seeing realignment in credit markets throughout the world, we're also seeing quite dramatic currency fluctuations.

For anyone who wants to raise their gaze and look at the bigger picture, I suggest checking out the latest Max Growth blog.

http: / /propertysecrets .net /blogs /max _growth /why _romania _why _now _what _bill _gates _says _and _what _a _senior _us _ambassador _and _the _founder _of _a _fortune _500 _company _believes /post -124 .html

cheers

Hi Neil,

I am in property for the long term. However my investment strategy means that I will wish to sell a small proportion of my properties over the medium term. This will be used for further re-investment in property but also as a source of income. Whilst I know there is the option of refinancing in many cases, I will still look to sell in some situations.

I totally agree with the principle of minimizing currency fluctuations wherever possible, but I am sure there will always be some people looking to sell and perhaps not reinvest in the same currency. It is therefore important to base our decisions upon sound and accurate information.

It seems to me local currency exchange rate movements in relation to the Euro can cause some confusion for UK investors looking at their final return on a property, depending upon how the data is calculated. If my calculations are correct a quoted growth rate will be enhanced if the data is calculated from Euro figures and then converted into a weakening local currency. If however the growth rates are based on local currency figures and then converted back into Euros (whilst the local currency has weakend) then growth rate will be reduced.


It is little difficult to show this clearly so I have included a couple of examples to hopefully illustrate this point :

Example 1)

Initial purchase price - 100,000 euro. With purchase exchange rate of 3.3 RON/Euro = 330,000 RON

50% growth based on the Euro price to give us sale price of 150,000 euro

Now if the property has to be sold in the local currency and the RON/Euro exchange rate is now 3.63 (down 10%) so sale price is 150,000 X 3.63

= 544500 RON (a 65% increase)


Example 2)

Initial purchase price - 100,000 Euros. With purchase exchange rate of 3.3 RON/Euro = 330,000 RON

50% growth based on the RON price to give us sale price of 495,000 RON

Now if we convert back into Euros and the RON/Euro exchange rate is now 3.63 (down 10%) so sale price is 495,000 / 3.63

= 136,363 Euros (a 36% increase)


If I am incorrect then I am happy to be corrected, but from what I can see the quoted growth rates could vary depending on which currency any performance figures are based. For anyone wishing to sell a property the actual currency it will be sold in will affect the bottom line, where currency exchange rates have changed significantly. For these reasons it is important to know these facts to help us manage our portfolios efficiently.

I look forward to an answer from Stan to clarify these points.


All the best,


Marcus P

Thanks for the reply from Stan.

It hadn't come up before I started writing the last post!

How about the issue of knowing when you will sell in Euros and when it will be in the local currency?? So far I haven't come across and info on this.

Cheers,

Marcus P

Hi Marcus P

It just seems that valuing in Euros is increasingly becoming the habit and that the habit is sticking.

All these countries have ambitions to join the Euro - so it makes sense (some already have - Slovenia, Cyprus - and other's have fixed or floating pegs; Bulgaria and Slovakia and (?) Latvia.

So, there is a real desire to adopt - which is obviously, not the case in the UK.

I think this again, emphasises that UK and Europe are two different countries!

Cheers
Neil

Hi Marcus P,

So the answer from Stan means a 36% or 65% increase following your example?

Several investors are like you wondering about this point. Thanks for your post!

Local practice is that you decide which currency you pay/get paid in.

Also refer to my previous analogy about fixing cricket matches!

Regards

Charles

Thanks Charles for clearing up the how the currency is chosen for a property sale. Is this just the case for Romania or does it apply to other countries? I guess having the option allows us to control what is best, given what we then want to use that money for. Of course ultimately some of the countries we invest in may have the Euro only, by the time we come to sell.

I would still like to know however, if PS investment performance figures reflect any fluctuations between the local currency and the Euro, or if they are based entirely on their Euro value at purchase and current valuation??

Currency movements seem in my experience to be notoriously difficult to predict and I don't think we should get to bogged down going down this route. It is good however to have a understanding of affects of such fluctuations and how this may influence our future decisions.

All the best,

Marcus P