Euro Weakness Effects on Eurozone Investment Property

Following news that Spain's AAA credit rating was to be downgraded and further threats from the European Central Bank that the eurozone banks could be forced to pay back a further EUR 195 billion in bad loans....

Following news that Spain's AAA credit rating was to be downgraded and further threats from the European Central Bank that the eurozone banks could be forced to pay back a further EUR 195 billion in bad loans, the euro has continued to weaken.

Commenting on news that property in countries where the currency is used has been attracting renewed interest, Robin Wilson, head of overseas at Rightmove, explains that it is helping to rebuild confidence among buyers.

"The improving Euro exchange rate is definitely playing a part, [searches in Spain are] up ten per cent on January this year and 20 per cent on January last year, meaning buyer's budgets can go further," he said.

Mr Wilson earlier went on to claim that this current rate was making buying real estate in the eurozone an attractive prospect for buyers and could explain the sudden rush of interest in property in the region.

Indeed, sterling has also enjoyed a remarkable run against the euro of late, with eurozone property reported to be up to 15 per cent cheaper to British buyers.

This is obviously expected to benefit markets in euro-using countries, many of which have seen a fall in demand within recent years, with buyers capitalising on current prices.

However, perhaps the biggest beneficiaries will be the markets where a high level of stability has been enjoyed during the downturn, with investors still wary about the potential risks associated with certain countries.

Long Term Outlook

Currently ranking as one of the world's worst performing currencies, of 50 of the most regularly traded, the euro is experiencing the fallout of the European Union's (EU) bailout measures.

At the other end of the scale, the dollar and yen are considered to be two of the most stable and best-performing currencies, with investors from the US and Japan able to really exploit the situation when it comes to buying property at the moment.

Numerous investors continue to be put off by the countries in the eurozone's inability, or refusal, to back the proposed bank bailouts with taxpayer funds, which undermines the currency further.

In fact, a recent report by Bloomberg reported that one of the world's most accurate foreign exchange predictors believes that the worst is yet to come for the euro.

Shaun Osborne, chief currency strategist at TD Securities in Toronto, told the news provider that as the European Central Bank continues to buy government bonds to support the economy, the currency will weaken and may even approach parity with the dollar.

The euro has already weakened 15 per cent against the dollar in the first half of this year.

"It's going to be an immensely challenging environment for these economies to try and regain competitiveness internally within the eurozone," Mr Osborne said.

In order for the euro to recover back to previous levels, the market needs to see that the EU bailout is working and for the economy of Greece to improve. In addition, improvements in the finances of other eurozone countries also need to be evident.

What This Means for Real Estate Investment

Indeed, the current climate for foreign property investment seems to be a healthy one, with a large number of market commentators positive about what the future holds.

The latest results from the Worldwide Property Group real estate confidence tracker found that the majority of individuals questioned believe property to be the best form of investment currently available, with 75 per cent choosing it as their primary vehicle for building wealth.

Kevin Wilkes, managing director of the organisation, highlights the current uncertainty of stocks as a reason for the dominance of property.

"In comparison the property market has demonstrated far more resilience to recent global economic shocks and has already regained a great deal of the value that was lost over the last few years," he explains.

"The results of this survey clearly demonstrate the confidence that the general public has in the property market."

Meanwhile, speaking at the Reuters Global Real Estate and Infrastructure summit in New York, Pamela Liebman, president of the Corcoran Group, said that the euro crisis was having an effect on the US market.

"The buying power of the euro has changed but the prices have changed too," she explained, highlighting the fact that in order to sell to buyers from within the eurozone, prices had come down.ADNFCR-3415-ID-19880767-ADNFCR

- Monday 12 July 2010

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