“When you invest internationally, currency is the name of the game, all other factors become secondary.
You think you’re buying real estate, stocks or businesses? Think again. Foreign Exchange fluctuations have become the number one cause of gains and losses. They have impacted every sector in every nation”.
~ Bryant Palma*, in a presentation April 17, 2018 made this statement to his audience.
This statement put a piece into the puzzle I had been working on for awhile.
When confidence in currencies begins to drop (that appears to be on schedule for 2020- 2021), all tangible assets will rise in value according to the decline in that currency. When we swap to a new currency, then tangible assets will make that transition in value. It is not that you will make a profit, the name of the game is that you just break-even.
A Flight of Capital
To survive, Investors are moving into fixed assets. High-end property has been rising as a flight of capital from Europe, China and Russia is emerging. Investors realize that they have to get their money out of certain banking systems. This is making real estate very attractive. We also have to understand that there is a new type of international money emerging and real estate is strangely part of it.
Secondly, art has risen for 7 years in a row setting all time new record highs. Rare coins and stamps are soaring, and all of this is again about capital flight into tangible assets.
Thirdly, the high-end ticket real estate is being bought up in the USA by the Chinese. However, the largest numbers of buyers of real estate in the USA are Canadians. This is both a tax and currency play. This is not your typical bubble. This is about capital shifting. Laws like FATCA require banks to report all accounts. Shifting to real estate is getting off the grid.
Warning: If you change the capital flows, you change the markets. If China successfully stops cash from pouring out of the country then the Vancouver market falls …
The reason for optimism is knowing that something exists and that empowers us with the ability to change.
Investment in Currency and Tax
So, if you sell real estate today in the Bay of Banderas, your investment in currency will dictate the amount of tax you pay to the government based on the currency exchange, not the value of the sticks and stones of the real estate, itself.
When you bought a home 2, 5, 10 years ago or whenever, you make an investment in currency exchange. Your US dollars are converted to the value of pesos at the day of closing on the real estate. So, you are playing with two currencies and this is your true investment, not the condo or home.
If you sell today and the exchange rate of USD dollars to pesos is 18.3 pesos to a USD dollar, your original USD investment is much stronger than when you bought 10 years ago at 12 pesos to the USD dollar. So, it will cost more pesos to buy back your USD dollars. Your investment was recorded in pesos so your $100,000 usd 10 years ago became 1,200,000 mx pesos. You sold today, and your investment has become 1,830,000 mx pesos. So, you made a profit. Your taxes will be paid in pesos and the balance can be left in pesos or you buy dollars back. USD dollars are strong, so it will take more to buy them back.
This article is based upon Flex MLS reporting, legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review. If you have any other questions, contact me through my website.Harriet Murray