Going With the Flow: Currency Fluctuations Lift Luxury International Purchases

Whether they’re looking for an apartment in London or Tokyo or a Barcelona penthouse, Americans buying property overseas—particularly in Asia and Europe—have benefited for several years from the strength of the U.S. dollar. 

While currency fluctuations occur daily and the exchange rate may be slowing international purchases of U.S. real estate, it has also contributed to an increase in American buying power in Europe and Japan, according to experts. And Americans’ wanderlust, matched with their buying power, is anticipated to continue to keep global luxury markets thriving.

“In 2022, Portugal Sotheby’s International Realty achieved our best result ever,” says Duarte Marques, new development director, Portugal Sotheby’s International Realty in Lisbon. “About 52% of our clients are of international origin, with Americans leading the way, followed by the British. It’s worth noting that, five years ago, Americans weren’t even in our top five countries for buyers, and now they occupy the first position.”

“About 52% of our clients are of international origin, with Americans leading the way, followed by the British. It’s worth noting that, five years ago, Americans weren’t even in our top five countries for buyers, and now they occupy the first position.”

Duarte Marques

Development director, Portugal Sotheby’s International Realty in Lisbon

Over the past two years, the euro has been down 8% compared with the U.S. dollar, and over the past five years it has declined 9%, according to XE.com. That trend shifted during the third quarter of 2023, with the euro up 6% year over year compared with the dollar. 

U.S. dollars are a global reserve currency, regarded as a safe investment based on the solidity of the economy and the government. Rising interest rates have contributed to the strength of the dollar since the Federal Reserve began raising rates in March 2022. Rates are expected to remain elevated for the foreseeable future.

Currency fluctuations have been particularly dramatic between the U.S. dollar and the Japanese yen, which has decreased by 25% compared with the U.S. dollar over the past two years and was down 24% over the past five years. Between November 2022 to November 2023, the yen fell 5.6% compared with the dollar. The yen first began its slide compared to the dollar in January 2021 and continues to decline.

“The current weak yen and the strong dollar is a big chance for us,” says Mugi Fukushima, branch manager, List Sotheby’s International Realty, Japan in Ginza, Tokyo. “Most of the new development condominiums are very popular with Japanese buyers, but recently they have increasingly wanted to resell their purchases to overseas clients after their purchase because they can sell for a little more thanks to the weaker yen.”

Exchange Rate Brings More Americans to Barcelona

The strong dollar is one of the most important reasons Americans are buying luxury properties in Spain, says Christoph Toelle, managing partner, Barcelona & Costa Brava Sotheby’s International Realty.

“The increase in American buyers started before the pandemic, Toelle says. “By today, U.S. buyers [represent] the biggest share of all our foreign buyers in Barcelona.”

There are multiple motivations for American buyers in Barcelona besides the favorable exchange rate, Toelle says.

“Compared to major cities in the U.S., the price of a comparable property is much lower in Barcelona,” Toelle says. “Plus, if you invest more than €500,000 of equity in Spain, you are entitled to ask for a ‘Golden Visa.’

This means you can enter and leave the European Schengen states as often as you want without the need of a visa, and allows you to stay for longer time periods in Spain or the Schengen states.”

Toelle says many American buyers plan to retire in Barcelona.

“We hear from them that, besides the beauty of the city, the beaches, and the lifestyle, they want to retire here because of the safe environment and the excellent, very affordable healthcare system,” Toelle says.

Discounts on London Homes

A lot of international buyers have fast-tracked their decisions to invest in London due to a strong currency play, combined with the fact that pricing has come down since a 2014 peak, according to Claire Reynolds, managing director, United Kingdom Sotheby’s International Realty. In some cases, during the early days of Covid-19, buyers were seeing a 40% discount in the cost of homes in London for those two reasons. The pound has gotten stronger since then, she says, but U.S. dollar-backed buyers are still seeing favorable currency exchanges, despite not-as-steep discounts.

Reynolds says certain centrally located London areas known for their pied-à-terres—like Mayfair and Knightsbridge—are particularly popular with buyers from the Middle East and India. Kensington, Notting Hill, and Holland Park are more popular with Americans, who are often looking for larger, primary homes for their families.

The “lock-up-and-leave” style apartment popular in Mayfair and Kensington is epitomized by the Four Seasons residences in Mayfair, she says. “That’s really set the tone. We’ve found that buyers are willing to pay up to 30% more for these branded residences,” she says.

Reynolds warns that currencies can fluctuate throughout the course of a property sale. Because international deals can take one to three months between when the offer is accepted and the buyer is actually converting their currency and paying for the home, there can be significant changes. “If you’re buying in dollars, the big question is when you’ll be converting them to pounds.” It’s important to stay on top of currency fluctuations throughout the process, she says.

Portugal’s Popularity Aided by Dollar Strength

The cost of living in Portugal, which was already lower than in the U.S., has become even more affordable because of the appreciation of the dollar against the euro, certainly contributing to attracting Americans to Portugal, says Marques.

“Americans have been able to purchase properties in Portugal with significant discounts, in some cases reaching between 15% and 20% because of the strength of the dollar,” Marques says. “Portugal has been gaining popularity, driven by its weather, with an average of 300 sunny days per year, the sense of security, and the quality of the healthcare system. 

For instance, the cost of one month of health insurance in the U.S. can cover an entire year in Portugal, with broader coverage.”

The favorable exchange rate for Americans has also made Portugal a hub for digital nomads, Marques says.

“Lisbon often ranks in the top five of the best cities in the world for digital nomads,” he says. “This has further enhanced the country’s appeal to an international audience.”

In response to the influx of Americans, the new development department at Portugal Sotheby’s International Realty is working closely with developers to create products tailored to luxury American buyers and other overseas buyers, Marques says.

Strong Dollar Entices More Foreign Buyers to Japan

While some people might look at a weaker yen as a negative situation, Fukushima sees this as an opportunity to attract more foreign buyers to Japan.

“We’re seeing more Singaporeans considering buying, especially in the ski resorts of Japan,” Fukushima says. “In addition to this, they have set their sights on Japan as a destination to move their funds to, due to the rising stamp duty in Singapore.”

In response to the increase in luxury buyers from other countries, List Sotheby’s International Realty, Japan is increasing its marketing overseas.

“We will continue to strengthen our inbound clients service,” Fukushima says. “Now we go to different countries every month to hold seminars on Japanese real estate. Recently we held it in Singapore, and we were able to make contact with a number of clients.”

List Sotheby’s International Realty, Japan also plans to develop housing styles that will appeal to foreigners, Fukushima says.

“Most of them are interested in Tokyo’s city condominiums and the Kyoto area, but we also see a lot of interest in several ski resorts and ocean areas,” Fukushima says.

Another trend, Fukushima says, is the rise of interest among Japanese citizens in purchasing property outside the country.

“While overseas clients are increasing, Japanese who want to buy overseas properties, especially in Asia and Hawaii, are also increasing,” Fukushima says. “Perhaps most of them are planning to transfer funds to foreign countries now. The current exchange-rate movements leave us with nothing but a big chance.”

Cash Buyers and Currency Fluctuations

Given the complexity of buying property in other countries and, in many cases, the limited availability of mortgage financing for foreign buyers, most luxury buyers around the world pay cash. Timing the purchase to a dip in the exchange rate can be nearly impossible, but the general trend of a stronger dollar continues to benefit American buyers.

In Japan, overseas clients must pay cash to buy real estate, Fukushima says. As a result, the country has experienced an overall increase in cash buyers with its influx of foreign buyers.

Marques estimates that 95% of Portugal Sotheby’s International Realty buyers pay cash, but there are some options for financing. “We have strong partnerships with major banks in Portugal to facilitate

 financing for foreign buyers, including Americans,” Marques says. “Our partnerships also extend to the legal and fiscal sectors, ensuring that we are well-prepared to assist Americans in optimizing their fiscal strategies when investing in Portugal.”

In Spain, too, most foreign buyers, especially Americans, are cash buyers, Toelle says.

“Some buyers like to leverage and ask for external finance, since their equity is invested with a higher yield than the actual interest rate they have to pay for external nance in Spain,” Toelle says. 

Currency Rate Snapshot 

A look at the currency rates during the second week of December 2023 showed the Japanese yen and Australian dollar are the only two of the six major currencies below that are down year over year compared to the U.S. dollar.

Source: XE Foreign Exchange Company, December 12, 2023