Real estate opportunities in Southern Europe: pick them with forward contracts, says Raphaels Bank

The economic crisis in Spain and Greece is providing new incentives for investors interested in real estate assets in Southern Europe.

With house prices expected to keep falling in those countries, Raphaels Bank has warned potential buyers to ensure that savings made on property purchases aren’t affected by fluctuating exchange rates and unforeseen transaction costs.

According to specialists at the bank, investors looking to buy abroad should opt for a complete transfer of funds on a particular day, or take out a forward contract.

“A complete transfer of funds has the advantage of allowing the buyer to lock-in the current exchange rate however it only works if all the cash for purchase is available on the day of transfer. Buyers may also lose out, as the interest you earn in the foreign currency may be less than you are currently earning on the money,” the bank said.

Meanwhile, a forward contract can secure an exchange rate and protect buyers from market changes.

“With growing concerns over Greece’s future within the single currency, uncertainty continues to push and pull the euro between highs of 1.25 and lows of 1.21. With the heightened volatility of the euro homebuyers should be aware of the affects that a swing in exchange rates can have on the final price of that dream home in the sun,” the bank said.

Tony Wilson, director of commercial foreign exchange at Raphaels Bank said homeowners in Europe are concerned by the potential risk of seeing the value of their property reduced by a euro exit from the euro.

“This sentiment might be better news for those who are considering buying property abroad when previously it may have been out of reach. With overseas new build properties in some locations reduced by up to 39% there is extra incentive to make the bold move of buying abroad. Small differences in rates, commissions or payment schedules can make a big difference to the end costs,” he said.


Photo: Simon Cocks

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