How can you be sure of being able to make stage payments for a new-build property overseas, in another currency, when exchange rates keep changing? Understand how to take the stress out of buying new-build in another currency.
When buying a property overseas more than half of buyers are willing to consider buying a new-build property*.
Buying a new-build property overseas involves agreeing a price in a different currency, then making several large international transactions over time. If the exchange rate changes in that time, so will the price paid. That poses a risk, but one easily removed when working with Smart Currency.
Also known as buying “off plan”, because the property is chosen from a drawn plan rather than a physical building, buyers typically pay a deposit and then in stage payments as the property is completed. This can take between a few months and a year or two.
Why buy new build?
- You can get a beautiful-looking new building that should accord to the latest eco- and energy-conservation specifications.
- Buyers may have a say in room layout and finishings.
- The property may be a cheaper, like for like with a finished property, as the buyer must wait while the property is built, or at least finished.
- Most countries have strict regulations and legal protections for new-build property buyers, including developer guarantees and snagging procedures.
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The risks of buying new build
There are some things that neither buyer nor developer can control. Such as a building delay due to poor weather or even a pandemic.
Payments for a new build typically start with a deposit, followed by stage payments as the building progresses. For example: 30% on signing, 20% when the foundations are laid, 20% with the walls, 20% with the roof, and 10% on completion. This can take can several years.
Over that period the exchange rate, if buying from overseas, is likely to change. Exchange rates can change considerably: as much as 10% is typical over the course of a year.
So, while a buyer may sign an agreement to buy a property overseas at one exchange rate and pay a deposit on the day, all subsequent payments are likely to be different – maybe more, maybe less – and completely unpredictable until the day of payment.
It is possible that the exchange rate moves so far against a buyer that their money cannot stretch to make the payment, causing a default and possibly losing the property and all payments made to date.
Fortunately, it doesn’t have to be that way.
Protecting stage payments using a forward contract
A forward contract fixes an exchange rate for up to two years for a set amount. For example, a new-build buyer might arrange a forward contract to buy €200,000 within the next year at that day’s exchange rate, say €1.18 to £1. All their payments will then be fixed at that rate, costing about £169,500.
If the rate subsequently dropped to €1.12, without a forward contract the buyer would need to £178,500; a considerable extra sum. With a forward contract, the €1.18 is guaranteed.
Making your currency plan
The first step to protecting your new-build purchase is to open an account with Smart Currency. This only takes a minute or two, with a quick ID check (in accordance with UK financial rules). It does not involve transferring money at this stage.
With an account open, the buyer can talk through their plans with their designated account manager at Smart Currency.
Clients who have bought new build, making several stage payments, tell us that the relationship with a named account manager offers real peace of mind. They can offer guidance on the best way to protect your funds of buying over time, such as a forward contract.
The new-build currency exchange process
Step one: Speak to your account manager about your requirements
Step two: Once you agree on the exchange rate and amount your account manager will buy the currency for you.
Step three: If using forward contract, you pay a deposit of 5% of the total amount.
Step four: Transfer the amount of the next stage payment to your client account at Smart Currency, usually by bank transfer or app.
Step five: Tell Smart Currency where you want the funds sent and they will be sent.
This will continue until the property is completed.
Why use Smart Currency Exchange?
Not every financial institution offers the protection of a forward contract. Neither banks nor most app-only exchanges will offer this level of service and vital protection for property buyers.
Smart Currency Exchange has been working with new-build property buyers since 2004. Your account manager will understand the processes and risks and remove those risks for you.
* Your Overseas Home survey 2024
