Investors abroad? Pay attention to changes in the value of the currency

The depreciation of the dollar and the euro affected the investments even though it did not affect the value of the asset itself.

Is the solution actually an investment in Israel?

Guest column

Dror loves Zion

14/12/2021

Tuesday, 14 December 2021, 09:02 Updated: 09:26

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For a few hundred thousand shekels and even less, you can buy in the US or Europe investment apartments that can yield a nice return, or other real estate assets such as offices, or warehouses, or even industrial areas

The high apartment prices in Israel and the heavy regulation on real estate investors are sending more and more Israeli investors to put their money in real estate abroad. The advantages of investing in real estate abroad lie first and foremost in the fact that abroad it is much cheaper to buy a property. To acquire a high and varied name, relatively low equity is required for Israel and the average return is higher than that of Israel and stands at 5-15%. For a few hundred thousand shekels and even less, you can buy investment apartments in the US or Europe that can yield a nice return, or other real estate assets like offices, or warehouses, or even industrial areas.

Along with the benefits, I want to talk here about one major risk in investing abroad "That Israeli investors do not necessarily take into account - currency exchange rates. Investment abroad is made in foreign currency and the Israeli investor is exposed to sharp and frequent currency changes that can "bite" him in the investment until the entire profit and even part of the equity is completely written off.

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Sharp declines

If he wants to sell the property that is already worth 60,000 euros today, he will receive only about 210,000 shekels on it at today's euro exchange rate - and all the profit is actually written off

In recent months, the Israeli shekel has traded in foreign exchange platforms at record levels of decades against the dollar and the euro. % In this period to about NIS 3.5 - lows of 21. Israeli investor who purchased a real estate property abroad and converted shekels to dollars or euros - experienced a sharp decline in his investment only due to currency changes that have no effect on them and are not related to the value of the property itself.

For example, let's take an Israeli investor who bought an apartment in Europe in early 2019 for 50,000 euros and paid NIS 208,000 in shekels.

Suppose he was lucky and the value of the property increased in those two years by 20% - a handsome return by all accounts.

If he wants to sell the property that is already worth 60,000 euros today, he will receive only about 210,000 shekels on it at today's euro exchange rate - and all the profit is actually written off.

Much easier and closer here (Photo: Reuven Castro)

A host of additional risks

Having said that, I understand that no investor acts not only for ideological reasons, but also understands that not everyone is aware of the risk of currency changes

We sell new apartments in Israel, so I do not pretend to be objective.

In my ideological view, I believe that money should be saved in Israel and invested in the Israeli market - it helps the Israeli economy, supports Israeli businesses, can help reduce unemployment rates in the country, and generally contributes to our country.

Having said that, I understand that no investor acts not only for ideological reasons, but also understands that not everyone is aware of the risk involved in currency changes.

Apart from the issue of exchange rates, there are of course many other risks in investing abroad, dozens of times more than investing in Israel. The geographical distance makes it difficult to control, relatively high dependence on local contacts, different laws, different regulation The hidden over the visible.I do not rule out investing abroad but do think it is not suitable for every investor.

In conclusion, it is important to understand that investing abroad has many risks and one of the main ones is the exposure to changes in the foreign exchange market as we are experiencing these days.

The forex market is very speculative and subject to strong fluctuations that can completely erase profit on investing in an asset abroad or alternatively double it - when aware of this it puts into investment considerations a motif of betting on an uncontrollable variable.

Therefore I recommend to be careful.

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