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How to Avoid Foreign Exchange Risk on Buying a New Build or Off-Plan Property
BACK
Building your own property or buying one off-plan can be very exciting and in some parts of the world, like Dubai, is often your main option. There is normally a long lead in time, often more than a year, between agreeing to buy the property, making stage payments and then making the final payment on completion. The fact that foreign exchange rates will fluctuate continuously in that time exposes you to a high level of risk.
Example:
If you were to buy a property in Europe for €400,000 depending on the exchange rate you could pay:
1.50 €/£ = £266,000
1.45 €/£ = £276,000
1.40 €/£ = £286,000
The exchange rate could move in your favour, but can you afford to take that risk? If you would like to avoid this risk and pay the price that you agreed in the first place, then your foreign exchange dealer is on hand to help.
Your foreign exchange dealer has a number of solutions available called 'forward' transactions. They involve fixing today's exchange rate for currency transfers that will only happen in the future. First you will need to open a trading facility with a foreign exchange dealer. (There is no charge for opening a facility and it does not commit you to anything). Then simply ask your dealer over the phone to 'forward buy' the foreign currency for you.
Two of the solutions are:
Fixed Forward
This is suitable if you know the dates when you will need to transfer currency overseas. Your foreign exchange dealer will be able to offer you a fixed price to buy your foreign currency at each of the dates required, such as paying the initial deposit, stage payments or the final payment on completion. This means that you will not have to transfer the currency overseas until necessary and you avoid the risk that the foreign exchange rate may go against you.
Fixed Time
This is more suitable if you do not know the dates when you will need to transfer the currency overseas. In the real world, developments often overrun their completion dates, especially for properties in the Alps where weather conditions can cause delays. This is very similar to the Fixed Forward solution, except that your foreign exchange dealer will offer you a date range between which you can transfer the currency overseas.
In both of these Forward Buying solutions the dealer will buy the currency on your behalf at the current exchange rates and hold the funds on account for you, until the agreed dates. They simply ask you to pay a 10% deposit at the time that you place the order. With Moneycorp you can forward buy your foreign exchange up to 2 years in advance, but secure today's exchange rate.
NEXT STEP
Open a Trading Facility
This is straightforward and should take no more than a few minutes of your time.There are no obligations whatsoever in opening a Trading Facility with Moneycorp.
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