Invest in a strengthening euro?

As I’m sure you are aware recent movements in the exchange rate have effectively increased the price of property here in Berlin. Indeed a number of our clients have expressed concern over the exchange rate and in view of this concern we thought we should contact you with our view of the situation.

In fact the euro has actually strengthened against the pound by approx 15% in the last 6 months therefore it’s true that for the property investor with British pounds then prices have increased. However, investors must be aware of the price levels here in Berlin. For example, we currently have available a superb investment property in Adlershof, Berlin at 29,950 euros. If we accept that this property is effectively 15% more expensive than six months ago we can calculate that this equates to only 4493 euros (or 3594 pounds) - not a significant sum in terms of UK property investment!!

Furthermore the money markets in London are certainly expecting a further interest rate reduction in the UK, probably in late Summer (depending on which newspaper you read!) likely to be in the order of a quarter of one per cent. With central European interest rates seemingly fixed at this time and unlikely to change in the foreseeable future then the likelihood is for a further strengthening of the euro against the pound. We believe that this presents an investment opportunity.

It is clear that a significant number of our investment clients favour a euro investment in order to balance their pound based property portfolio. This certainly makes sense to us in that it offers a hedge against extraordinary exchange movements in the future.

In addition, for investors wishing to have a euro mortgage then interest rates are certainly lower than the UK. Typical euro rates are 5.3% whereas UK rates are typically 6.5-7.5% - assuming only a 1% difference equates to a saving of 4500 euros of interest on, say, a 30,000 euro mortgage over 15 years. In other words, you can save the recent increase in price through exchange rates with a euro mortgage!!

Remember also that we strongly believe that property prices in Berlin are due for a major correction over the next 3 - 5 years. Capital growth (as well as rental income) can therefore build into a healthy bank balance in euros. Subsequently, this growth, can offer a significantly greater purchase power in pounds with the eventual repatriation of investment funds to the UK. In other words the property purchase now may be slightly more expensive but investing in the continuing strength of the euro can increase your subsequent return in pounds at the time of conversion.

So, should we still invest in the strengthening euro? ..... In our view, Berlin remains a STRONG BUY recommendation and let’s be honest where else can you buy an apartment in a European capital city for the price of a car??!!

PS the property at 29,950 € with a 6% guaranteed yield for 3 years is on our web site - see ref. FBFB1231.