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Patricia Tan – Perspectives – International REAL Estate

Patricia Tan

Money Flows Across Borders

By Patricia Tan

The U.S.A. and the U.S. dollar have long been considered safe havens for capital from around the world, and our real estate market has been a beneficiary of that money flow. We see money fleeing political instability in its own country, or simply being invested here for a return. The strength of the U.S. dollar in international markets does have an impact on the rate at which money flows across our borders. A weak dollar tends to attract foreign investment, while a strong dollar may encourage prof-it-taking and repatriation of funds.

Canadians represent the largest group of foreign real estate owners here in Florida. Many buy winter homes simply to escape their harsh winter months, while others purchase rental properties to diversify their investments. Between 2007 and 2010 the Canadian dollar, supported by a strong commodity-based economy, regularly traded at or near par with the U.S. dollar, and this encouraged record levels of Canadian investment here in Florida. The currency landscape today is much different with the Canadian dollar worth around 75 U.S. cents.

Currency Chart

Consider the case of one of our customers, a savvy Canadian, who purchased a home here in 2010. They paid $153,000 which was the equivalent of CAD153,000. They recently sold this home for $236,000 realizing a capital gain of $83,000 or 54%. When they translate this gain into Canadian dollars, $236,000 today is equivalent to CAD314,000. Comparing this to their original investment of CAD153,000 shows a capital gain of CAD161,000 or 105% – they have more than doubled their original investment! Encouraged by a strong U.S. dollar, we have seen some of our Canadian and European customers sell properties here to take the proceeds back to their home countries. Some have told us they will continue to enjoy being snowbirds here by renting winter homes until the U.S. dollar weakens when they will consider buying real estate here again.

But money isn’t everything, so the saying goes. What of the owners who are attached to their winter homes and don’t wish to sell but do want to take advantage of the currency opportunity. In a recent conversation with a Vice President at The Royal Bank of Canada, he revealed they are seeing an uptick in Canadians who are refinancing their U.S. homes to release cash to take back to Canada. When the currency has moved by as much as 33%, or they have achieved more than 100% return on their original investment, paying 5% interest on a mortgage seems a small price to pay for them to be able to enjoy the fruits of their investment. Some of the funds from these cash-out refinances are also being in-vested here in Florida for the purchase of rental properties.

So those Europeans and Canadians who already own homes in Florida are “sitting pretty”, but what of those who aspire to home ownership here? Does the strength of the U.S. dollar make them think twice? What can they do to overcome concerns about currency exchange rates?

Traditionally, most of our foreign buyers have purchased homes with cash, but we have seen this change over the past couple of years. More of them are now purchasing with U.S. dollar mortgages as a hedge against the strength of the U.S. dollar. Consider the British buyer who has cash to purchase a Florida investment property. They can finance this purchase and exchange only 35% of the purchase price, financing the remaining 65%. U.S. dollar rental income will cover the monthly mortgage pay-ments. When the U.S. dollar weakens and Sterling strengthens, they can exchange more money and repay the mortgage balance if they choose.

There is no doubt that the U.S. dollar’s standing in international markets influences how, and how much, money flows across our borders, and our international snowbirds and investors will continue to take this into consideration when deciding when and how to buy or sell Florida real estate.

patricia-tanPatricia Tan was born in England, and her career in international sales and marketing led her to live and work in many countries around the world before moving to Sarasota in 1997. Patricia is a Certified International Property Specialist (CIPS), Graduate Realtor Institute (GRI), and Transnational Referral Certified (TRC). She is involved in global activities of the Sarasota, Florida and National Association of Realtors, and currently serves as NAR President’s Liaison to U.K. Her real estate business operates from Coldwell Banker on St Armands Key, where her focus is to bring inter-national buyers to the local market. She regularly makes marketing trips to Canada, Asia and Europe, to promote Florida’s Gulf Coast and the Sarasota area in particular. Patricia may be reached at 941-504-9232 or Pat@PatriciaTan.com.

Copyright © 2018 REAL Exclusive Magazine www.getrealexclusive.com
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