Timing Foreign Property Investments Based On Currency Exchange Rates

Should You Time The Currency When Investing In Real Estate Overseas?

When I bought my apartment in Medellin, Colombia, I wrote that I don’t try to time currency exchange rates when investing in real estate. I can’t predict which way exchange rates are going to move any more reliably than anyone else can, so I don’t try. A reader at the time wrote in to say that my position was silly and that he was going to wait to invest in real estate in Colombia until the exchange rate was where he wanted it to be.

Three-and-a-half years later, the rate of exchange between the U.S. dollar and the Colombian peso has moved dramatically in favor of the U.S. dollar-holder. Your U.S. dollars buy about 35% more right now than they did in mid-2011, when I bought my apartment. During that same period, property values in Medellin have increased by at least 35% in peso terms. The guy who was waiting for the currency to move in his favor should feel comfortable buying right now. On the other hand, he’s going to pay 35% more in peso terms than I did when I bought. And I’ve had use of and rental income from my apartment in the meantime.

The guy who could have and who should have bought in 2011 aside, the current exchange rate is an opportunity to buy into what is a solid and appreciating market at what amount to 2011 U.S. dollar values.

The local economic dynamics remain strong. The middle class is expanding. The economy is growing. The government is stable. Perhaps most important for the investor, the 2015 global perception of Colombia is dramatically improved compared with the 2011 global perception… and it continues to improve.

Colombia has launched a tourism marketing campaign focused on showcasing the beauty of the country. Forget our troubled past and take a look at all we’ve got to offer, Colombia is telling the world. More foreign tourists are visiting… more foreign investors are investing.

The cost of an apartment in Medellin has appreciated 5% to 10% a year for the last four years and longer. Still, property prices in this city have remained a great bargain compared with prices in other major cities throughout Latin America. Since last October, when the U.S. dollar began its move on the Colombian peso, those bargain per-square-meter Colombian peso prices have converted to ever-greater bargains in U.S. dollar terms. Right now, as I’ve said, property prices when converted to greenbacks are close to 2011 levels.

This is the time to be shopping.

Focus on El Poblado in the heart of the city. Apartments here are most rentable, for this is where tourists and expats migrate, meaning big and diverse rental pools.

El Poblado is also the high-rent district. Each neighborhood in Medellin is broken down into what are referred to as “strata,” numbered from 1 to 6. Strata 6 is the highest level. In strata 6 neighborhoods you find the most expensive properties and the highest levels of services, as well as the highest associated expenses. Property taxes, electricity rates, and other property-related costs increase strata by strata. El Poblado properties are mostly stratas 4 and 5.

El Poblado is your best bet for a property purchase in Medellin, but it’s not the only part of the city that can make sense. Other, more affordable neighborhoods to consider include Laureles (another neighborhood in the city) and Envigado (the suburb just outside the city, on the edge of El Poblado).

Office space, commercial space, and even condo-hotel rooms are other real estate options that can make sense in this market. With the economy remaining reasonably strong (growth of 4.2% in 2014 and projected growth of 4% for 2015), I expect property values to continue their steady appreciation of the past half-dozen years.

I still can’t predict the direction of currency markets, including this one. The U.S. dollar could continue to strengthen against the Colombian peso, or it could fall from the current 2,350 back into its general trading range of the last five years (between 1,750 and 2,050).

Regardless, real estate in Colombia, in particular in Medellin, is a smokin’ deal in U.S. dollar terms right now. Take action while you can.

Lief Simon


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