When investing in real estate, many people tend to focus on price trends, rental returns, and the policy environment, easily overlooking an “invisible but ever-present” factor—the exchange rate. This is especially true for cross-border real estate investment, where the property is overseas, the funds originate domestically, and future returns may flow back into the home currency account. Every change in the exchange rate directly affects your real returns. Some people think, “I’m buying physical assets; exchange rate fluctuations are just paper changes and don’t affect long-term value.” This statement isn’t entirely wrong, but it’s not entirely correct either. The exchange rate doesn’t change the bricks and land of the house, but it does change how much money you ultimately get back—whether you make a profit or not.
The Essence of Exchange Rate Impact
The exchange rate doesn’t change whether a house is occupied or whether rent is paid, but it directly affects three key outcomes: your purchase cost when exchanging your home currency for foreign currency to buy the property; the actual amount of home currency you receive when collecting rent; and the total return that ultimately flows back to your home currency account after selling the property. Property returns are calculated in local currency, but what you really care about is the return after converting it back to your preferred currency. This difference is the impact of exchange rates.
The Purchase Phase
When buying property across borders, the exchange rate at the moment of purchase is crucial. If you enter the market when your local currency is strong and the foreign currency is weak, you can buy the same property with less local currency. Conversely, entering when the foreign currency is strong and your local currency is weak passively increases the cost of buying the property. Many investors overlook this, focusing only on whether property prices have risen, without realizing they might be buying at a high point in an unfavorable exchange rate range, which directly increases the difficulty of recouping their investment later.
The Holding Phase
During the holding period, rental income is the most direct cash flow. However, for cross-border investors, the true value of rental income depends on the exchange rate level when you convert it back to your local currency.
Foreign currency appreciation: The same rental income earns you more local currency, amplifying the return.
Foreign currency depreciation: The rental income remains the same, but you receive less local currency, resulting in a smaller actual return.
If your investment goal is a long-term, stable cash flow, then long-term exchange rate trends will have a continuous impact on overall returns, rather than a one-off effect.
Exit Phase
Exchange rate impact is most concentrated when selling property to realize cash. Even if property prices have risen, if the foreign currency has significantly depreciated relative to the local currency at the time of sale, the following may occur: the property price may have increased on paper, but the return after converting back to the local currency is limited; or even a small increase in property prices may be offset by the exchange rate, resulting in a negligible actual return. Conversely, if property prices are stable but the foreign currency appreciates, additional returns may be gained through exchange rate fluctuations. Therefore, the final result of real estate investment is often the combined result of changes in property prices and exchange rates.
Which Investors Are More Affected by Exchange Rate Risk?
Exchange rate fluctuations do not affect everyone equally. The impact depends primarily on the following factors: whether the source of funds and living expenses are in the same currency; whether there are plans to repatriate funds to the local currency in the future; whether the investment cycle is short-term or long-term; and whether rental income is the primary source of return.If you live locally long-term and use the local currency for both income and expenses, the impact of exchange rates is relatively small; however, if you are a typical cross-border investor who needs to convert assets back to the local currency in the future, the impact of exchange rates becomes very real.
Will Exchange Rates “Automatically Helve in the Long Term”?
A common view is that “in the long run, exchange rates will return to a reasonable range, so there’s no need to worry too much.” This view has some merit, but it’s based on the premise that: your investment period is long enough; you have the patience to wait for the exchange rate to return to its normal range; and you don’t need to force liquidation midway. If your funds have specific timeframes, cash needs, or family plans, then short- to medium-term exchange rate fluctuations can still put real pressure on you.
How Can Ordinary Investors Cope with Exchange Rate Impacts?
Without complex financial instruments, ordinary people can reduce the impact of exchange rates in several ways: exchange currency in batches to avoid betting on a single exchange rate point at once; extend the investment period to smooth out fluctuations over time; retain some profits in local currency for reinvestment or expenditure; and in investment decisions, treat the exchange rate as part of the cost and benefit calculation, rather than ignoring it. The core is not predicting exchange rates, but avoiding betting all outcomes on a single exchange rate direction.
The impact of exchange rate fluctuations on real estate investment is not on the property itself, but on how much money you ultimately get back. It affects the purchase cost, cash flow during the holding period, and can amplify or compress the overall return upon exit. For investors living locally and earning income in their own currency, exchange rates are more of a background factor; however, for cross-border real estate investors, exchange rates are a variable that cannot be ignored. They won’t influence your decisions every day, but they will determine the outcome at crucial moments. As long as exchange rates are incorporated into the overall calculation during the planning stage and treated in a long-term and diversified manner, exchange rate risk can be managed, rather than being avoided.
