Making your property investment pay
Published: Monday 23 November 2015
The added complication with any cross border investment is the matter of the foreign exchange. The 10% return guaranteed by International Property Investors is a very attractive opportunity but it is all too easy to see that return diminished by poor currency management or unexpected exchange rate fluctuations.
International Property Investors have joined forces with currency specialists, Halo Financial to provide solutions to meet the needs of investors and to ensure that guarantee is received in full.
Managing the initial investment
The required £5,000 deposit can be managed in a number of ways. A wire transfer from your Chinese bank to IPI's UK bank will involve an exchange rate at some point. It is rarely possible to control that rate and generally banks will apply their 'rate for the day' which is likely to be several percentage points away from the real 'interbank' market rate. Investors could send those funds into a client account with Halo Financial and agree an exchange rate directly, giving certainty over the exchange rate and ensuring a rate much closer to the real market. As this is an immediate requirement, a Spot Contract is the obvious method of conversion.
To cut the risk of exchange rates adding costs to your investment, many investors choose to cover all their requirements on Forward Contracts. Agree an exchange rate today, or when the exchange rate is particularly attractive, and set a settlement date for the contract up to two years in the future. That gives you certainty over the amount of Yuan your investment is going to cost you and allows you to make your plans without the worry over Sterling strengthening and increasing the number of Yuan needed to secure your GBP investment.
However, if, for example, the pound was weakening at the time, you could wait and buy your GBP when the exchange rate is more to your liking. However, that exposes you to a sudden spike in the rate. You can guard against that with a Stop Loss Order. This acts as a safety net, guaranteeing a minimum exchange rate but leaving room for the market to improve. These are automated orders which stay in the foreign exchange market and are tracked 24 hours a day but are only triggered if the exchange rate breaches your pre-determined level.
There is another automated order which is also popular amongst investors. The 'Limit Order'; sometimes called the 'Take Profit Order', also provides 24 hour cover but is paced at an exchange rate that is better than the current market rate. So if the Yuan to GBP rate is at 10.50 for example, but you want to target 10.40, you can place an order which will only be triggered if the pound falls to that level and that could happen any time of the day or night.
Cover all the bases
You can combine the use of Stop Loss and Limit orders to target an advantageous exchange rate but protect against further decline. These can be placed on a one-cancels-other (OCO) basis that suits your needs. Contact your Halo Financial consultant for further information.
Managing your returns
Forward contracts are used by many investors to set firm exchange rates for the returns over time. As you are guaranteed 10% per quarter, you can pre-sell that amount of Sterling on forward contracts for up to 2 years ahead. That provides certainty but, if Sterling is strengthening and the Yuan is weakening (both statements are true at the time of writing), it is possible to use the same Stop loss and limit order combinations mentioned above to guarantee a worst case exchange rate but take advantage of any spikes and then convert those filled orders into forward contracts if that suits.
Ultimately, every investors circumstances, attitude to risk and financial arrangement will be unique and the right strategy for one will be wrong for another but a short conversation with a Halo Financial Consultant will help to clarify what might work for you and enable you to set a plan of action in place to save you money and enhance your property investments.